The opposite holds if there is real wage rigidity in both countriesc = < 0), as is illustrated in Figure 11.15. Fiscal policy constitutes a beggar-thy-neighbour policy and uncoordinated actions by national governments lead to spending levels that are too high. The coordinated policy solution internalizes this "pollution-like" aspect of government spending and consequently leads to lower spending levels.

Up to this point we have only analysed the symmetric cases of either nominal or real wage rigidity in both countries. As a final case, consider the mixed case where there is real wage rigidity in the domestic country (Europe) and nominal wage rigidity in the foreign country (the US). This configuration implies that < 0 and 0 < < 1. Following the same reasoning as before, but noting that now it is possible to derive the uncoordinated and coordinated solutioncccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccacccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccs for government