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Enlargement versus Deepening: The Trade-off Facing Economic Unions

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  • Oliver Lorz
  • Gerald Willmann

Abstract

This paper analyzes the relationship between the size of an economic union and the degree of policy centralization. We consider a political economy setting in which elected representatives bargain about the degree of centralization within the union. In our model strategic delegation affects the identity of the representatives and hence the equilibrium policy outcome. We show that the relationship between the size of the union and centralization may be non-monotonic: Up to a certain size of the union enlargement leads to deeper integration,whereas beyond that size further enlargement implies less centralization. We also show that freezing the level of centralization or allowing an associated membership can mitigate the trade-off.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2455.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2455

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Keywords: fiscal federalism; policy centralization; political economy;

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References

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  1. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2003. "International Unions," Harvard Institute of Economic Research Working Papers 2001, Harvard - Institute of Economic Research.
  2. Giovanni Facchini & Oliver Lorz & Gerald Willmann, 2005. "Asylum Seekers in Europe: The Warm Glow of a Hot Potato," Development Working Papers 205, Centro Studi Luca d\'Agliano, University of Milano.
  3. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, Elsevier, vol. 87(12), pages 2611-2637, December.
  4. Robert A.J. Dur & Hein J. Roelfsema, 2002. "Why does Centralisation fail to internalise Policy Externalities?," Tinbergen Institute Discussion Papers 02-056/3, Tinbergen Institute, revised 11 Nov 2003.
  5. Lorz, Jens Oliver & Willmann, Gerald, 2004. "On the Endogenous Allocation of Decision Powers in Federal Structures," Center for European, Governance and Economic Development Research Discussion Papers 25, University of Goettingen, Department of Economics.
  6. Redoano, Michela & Scharf, Kimberley Ann, 2002. "The Political Economy of Policy Centralization: Direct Versus Representative Democracy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3631, C.E.P.R. Discussion Papers.
  7. Christina Schneider, 2007. "Enlargement processes and distributional conflicts: The politics of discriminatory membership in the European Union," Public Choice, Springer, Springer, vol. 132(1), pages 85-102, July.
  8. Michele Ruta, 2005. "Economic Theories of Political (Dis)integration," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 19(1), pages 1-21, 02.
  9. Torsten Persson & Guido Tabellini, 1990. "The Politics of 1992: Fiscal Policy and European Integration," NBER Working Papers 3460, National Bureau of Economic Research, Inc.
  10. Wilson, John Douglas & Janeba, Eckhard, 2005. "Decentralization and international tax competition," Journal of Public Economics, Elsevier, Elsevier, vol. 89(7), pages 1211-1229, July.
  11. Roberto Perotti & Massimo V. Rostagno & Gian-Maria Milesi-Ferretti, 2001. "Electoral System and Public Spending," IMF Working Papers 01/22, International Monetary Fund.
  12. Wolfgang Buchholz & Alexander Haupt & Wolfgang Peters, 2005. "International Environmental Agreements and Strategic Voting," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 107(1), pages 175-195, 03.
  13. Anders Olofsgârd, 2004. "Secessions and Political Extremism: Why Regional Referenda Do Not Solve the Problem," Journal of the European Economic Association, MIT Press, MIT Press, vol. 2(5), pages 805-832, 09.
  14. Guillaume Cheikbossian, 2000. "Federalism, distributive politics and representative democracy," Economics of Governance, Springer, Springer, vol. 1(2), pages 105-122, 07.
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Cited by:
  1. 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.
  2. Bard Hastad, 2007. "Strategic Delegation and Voting Rules," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1442, Northwestern University, Center for Mathematical Studies in Economics and Management Science.

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