Scenario:

Imagine a repeated game scenario where two countries are engaged in fiscal policy coordination. Each country has the option to either follow a cooperative fiscal policy, which leads to a Pareto-efficient outcome, or to deviate and pursue its own non-cooperative fiscal policy, which leads to a less efficient outcome for both countries. The game is played over an infinite horizon with a discount factor.

My Question:

Analyze the conditions under which fiscal policy coordination can be sustained as a subgame-perfect equilibrium. What strategies should each country adopt to ensure that the cooperative fiscal policy outcome is maintained over time? How does the discount factor affect the stability of cooperation?