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On enhanced cooperation

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  • Bordignon, Massimo
  • Brusco, Sandro

Abstract

Should a subset of member states of a federation be allowed to form a sub-union on some policy issue? When centralization is not politically feasible, allowing an enhanced cooperation agreement among a subset of countries permits the latter to gain benefits which would otherwise be lost. However, if in the future the excluded countries also want to join, the fact that a sub-union has been formed in the past may change the status quo to the advantage of the first comers. We show that as long as countries can commit to harmonize at a policy which also takes into account the utility of the excluded country, sub-union formation may be optimal. The relative advantage of a sub-union towards centralization increases when transfers are costly. On the other hand, if commitment is not possible then excluded countries may be penalized. We use these results to discuss of the newly introduced rules for enhanced cooperation agreements in the European Union, suggesting that they might lead to increased centralization.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 90 (2006)
Issue (Month): 10-11 (November)
Pages: 2063-2090

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:10-11:p:2063-2090

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Web page: http://www.elsevier.com/locate/inca/505578

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Cited by:
  1. Daron Acemoglu & Georgy Egorov & Konstantin Sonin, 2008. "Dynamics and Stability of Constitutions, Coalitions, and Clubs," NBER Working Papers 14239, National Bureau of Economic Research, Inc.
  2. Marcel Gérard, 2006. "Reforming the Taxation of Multijurisdictional Enterprises in Europe, a Tentative Appraisal," CESifo Working Paper Series 1795, CESifo Group Munich.
  3. Leon Bettendorf & Albert van der Horst & Ruud de Mooij & Hendrik Vrijburg, 2009. "Corporate tax consolidation and enhanced cooperation in the European Union," CPB Discussion Paper 132, CPB Netherlands Bureau for Economic Policy Analysis.
  4. Charles McLure Jr., 2008. "Harmonizing Corporate Income Taxes in the US and the EU: Legislative, Judicial, Soft Law and Cooperative Approaches," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 9(2), pages 46-52, 07.
  5. Libman, Alexander Mikhailovich, 2009. "Эндогенные Границы И Распределение Власти В Федерациях И Международных Сообществах
    [ENDOGENOUS BOUNDARIES AND DISTRIBUTION O    ," MPRA Paper 16473, University Library of Munich, Germany.
  6. Marcel Gérard, 2006. "Reforming the Taxation of Multijurisdictional Enterprises in Europe, “Coopetition” in a Bottom-up Federation," CESifo Working Paper Series 1860, CESifo Group Munich.
  7. Nikitas Konstantinidis, 2007. "Gradualism and Uncertainty in International Union Formation," CESifo Working Paper Series 2076, CESifo Group Munich.
  8. Hendrik Vrijburg & Ruud A. de Mooij, 2010. "Enhanced Cooperation in an Asymmetric Model of Tax Competition," Tinbergen Institute Discussion Papers 10-011/3, Tinbergen Institute.
  9. Boadway, Robin & Tremblay, Jean-François, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
  10. Charles E. McLure, Jr., 2008. "Harmonizing Corporate Income Taxes in the European Community: Rationale and Implications," NBER Chapters, in: Tax Policy and the Economy, Volume 22, pages 151-195 National Bureau of Economic Research, Inc.

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