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The Political Economy of International Unions

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Author Info
Alberto Alesina
Ignazio Angeloni
Federico Etro

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Abstract

We model an international union as a group of countries deciding together the provision of certain public goods and policies because of spillovers. The countries are heterogeneous either in preferences and/or in economic fundamentals. The trade off between the benefits of coordination and the loss of independent policymaking endogenously determines the size, the composition and the scope of unions. Our model implies that the equilibrium size of the union is inversely related to the degree of heterogeneity between countries and to the spectrum of common policies. Hence, there is a trade off between enlargement and deepening of coordination: a union involved in too many collateral activities will be favored by few countries, while a union which focuses on a core of activities will be favored by many countries. However the political equilibrium implies a bias toward excessive centralization and small size of the union. This bias can be corrected if there is a constitutional commitment of the union to centralize only certain policies.

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Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1939.

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Date of creation: 2001
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Handle: RePEc:fth:harver:1939

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alberto Alesina & Romain Wacziarg, 1999. "Is Europe Going Too Far?," NBER Working Papers 6883, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers 1759, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December. [Downloadable!] (restricted)
  4. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May. [Downloadable!] (restricted)
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  5. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October. [Downloadable!] (restricted)
  6. Alberto Alesina & Enrico Spolaore & Romain Wacziarg, 2000. "Economic Integration and Political Disintegration," American Economic Review, American Economic Association, vol. 90(5), pages 1276-1296, December. [Downloadable!] (restricted)
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  7. Kyle Bagwell & Robert W. Staiger, 1999. "An Economic Theory of GATT," American Economic Review, American Economic Association, vol. 89(1), pages 215-248, March. [Downloadable!] (restricted)
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  8. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June. [Downloadable!] (restricted)
  9. Kyle Bagwell & Robert W. Staiger, 2001. "Domestic Policies, National Sovereignty, And International Economic Institutions," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 519-562, May. [Downloadable!] (restricted)
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  10. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 409-436, May. [Downloadable!] (restricted)
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  11. Bolton, Patrick & Roland, Gerard, 1997. "The Breakup of Nations: A Political Economy Analysis," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1057-90, November.
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  12. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, vol. 64(3), pages 623-46, May. [Downloadable!] (restricted)
  13. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2001. "Institutional Rules for Federations," NBER Working Papers 8646, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Alberto Alesina & Vittorio Grilli, 1991. "The European Central Bank: Reshaping Monetary Politics in Europe," NBER Working Papers 3860, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Alesina, Alberto & Perotti, Roberto, 1998. "Economic Risk and Political Risk in Fiscal Unions," Economic Journal, Royal Economic Society, vol. 108(449), pages 989-1008, July. [Downloadable!] (restricted)
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  16. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June. [Downloadable!] (restricted)
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  17. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 979-1009, October. [Downloadable!] (restricted)
  18. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1027-56, November.
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  19. Massimo Bordignon & Paolo Manasse & Guido Tabellini, 2001. "Optimal Regional Redistribution under Asymmetric Information," American Economic Review, American Economic Association, vol. 91(3), pages 709-723, June. [Downloadable!] (restricted)
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  20. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hans-Günter Krüsselberg, 2005. "Milton Friedman und der Wissenschaftliche Beirat für Familienfragen Elternkompetenz und Anteilscheine am Schulbudget – Gedanken über Reformpotenziale," Marburg Working Papers on Economics 200506, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung). [Downloadable!]
  2. repec:dgr:uvatin:20020056 is not listed on IDEAS
  3. Robert Dur & Hein Roelfsema, 2004. "Why does Centralisation Fail to Internalise Policy Externalities?," Working Papers 04-09, Utrecht School of Economics. [Downloadable!]
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  4. Oliver Lorz & Gerald Willmann, 2004. "On the Endogenous Allocation of Decision Powers in Federal Structures," Kiel Working Papers 1209, Kiel Institute for the World Economy. [Downloadable!]
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  5. Nikitas Konstantinidis, 2007. "Gradualism and Uncertainty in International Union Formation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Michele Ruta, 2003. "The allocation of competencies in an international union: a positive analysis," Working Paper Series 220, European Central Bank. [Downloadable!]
  7. Jürgen Stehn, 2002. "Towards a European Constitution: Fiscal Federalism and the Allocation of Economic Competences," Kiel Working Papers 1125, Kiel Institute for the World Economy. [Downloadable!]
  8. Facchini, Giovanni, 2002. "Why Join a Common Market? The Political Economy of International Factor Mobility in a Multi-country Setting," Working Papers 02-0121, University of Illinois at Urbana-Champaign, College of Business. [Downloadable!]
  9. Alberto Alesina & Ignazio Angeloni & Ludger Schuknecht, 2001. "What Does the European Union Do?," NBER Working Papers 8647, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Marco Montanari, 2006. "Between European integration and regional autonomy: the case of Italy from an economic perspective," Constitutional Political Economy, Springer, vol. 17(4), pages 277-301, December. [Downloadable!] (restricted)
  11. Jürgen von Hagen & Susanne Mundschenk, 2002. "Fiscal and Monetary Policy Coordination in EMU," Working Papers Central Bank of Chile 194, Central Bank of Chile. [Downloadable!]
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  12. Xavier Debrun & Paul R. Masson & Catherine A. Pattillo, 2003. "Monetary Union in West Africa: Who Might Gain, Who Might Lose, and Why?," IMF Working Papers 02/226, International Monetary Fund. [Downloadable!]
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  13. Alberto Alesina & Ignazio Angeloni & Federico Etro, 2001. "Institutional Rules for Federations," NBER Working Papers 8646, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Massimo Bordignon & Sandro Brusco, 2003. "On Enhanced Cooperation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  15. Carlos Vieira & Isabel Vieira & Sofia Costa, 2003. "Monetary and Fiscal Policies in EMU: some relevant issues," Eastward Enlargement of the Euro-zone Working Papers wp17f, Free University Berlin, Jean Monnet Centre of Excellence, revised 01 Mar 2003. [Downloadable!]
  16. Christina Schneider, 2007. "Enlargement processes and distributional conflicts: The politics of discriminatory membership in the European Union," Public Choice, Springer, vol. 132(1), pages 85-102, July. [Downloadable!] (restricted)
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