The aim of this research proposal is to examine the effects and transmission channels of fiscal policy in open economies. The theoretical basis for the empirical tests lies in the recent advances in the modelling of fiscal policy. I propose to analyse the transmission of fiscal policy on labour markets, focusing on the supply and demand effects of various budget components. In a further step, I consider applying spatial analysis to quantify spillover of fiscal policy across borders. The results will have immediate bearing on the theories involved, but also carry relevant policy implications for the design and coordination of structural and macroeconomic policies in the Economic and Monetary Union.
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