The paper examines policy externalities between imperfectly competitive open economies where unemployment prevails in general equilibrium. We develop a two-country and two-sector model with monopolistic competition in the goods market and wage bargaining in the labor market. Policy externalities operate through the real exchange rate and economic integration is modeled as a reduction in trade costs. We explore how market integration influences policy spillovers, employment and real wages. We also examine how national and supranational commodity tax policies affect sectoral and total employment. Finally, we characterize optimal commodity taxes with non-cooperative and cooperative policies and offer some rough estimates of the welfare gains from policy coordination, using a calibrated version of the model.
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Paper provided by Uppsala - Working Paper Series in its series Papers with number
1999:7.
Length: 27 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:uppaal:1999:7
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Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination F15 - International Economics - - Trade - - - Economic Integration J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
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