Suppose that both governments choose their own spending level independently, i.e. without taking the possible repercussions for the other country into account. In this case, fiscal policy is uncoordinated and each country chooses its spending level conditional upon the other country's spending level. For example, the policy maker in the domestic economy solves:

i , 2 0 2 gin LG = (g fig*

ig +

which yields the domestic country's reaction function, RR:

aLG as-

= + — j7) + eg = 0 g = 1 + 0 ' RR.