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Is Europe Going Too Far?

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  • Wacziarg, Romain
  • Alesina, Alberto

Abstract

This paper examines the process of European political integration. We start with a political-economy model of monetary policy, illustrating a general principle: economic integration requires setting up European institutions endowed with the authority to enact Europe-wide policies. On the other hand, when countries can take advantage of scale effects thanks to economic integration, the need for large countries is reduced. Thus increased economic integration reduces the need for political integration in Europe. To reconcile these views, we propose a model for the optimal allocation of prerogatives across levels of government. When the provision of public goods is characterized by cross-border spillovers, some centralization of policies is needed to internalize the externality. These gains from centralization must be traded-off against the costs from imposing the same policies upon heterogeneous groups. The optimal allocation of prerogatives results from this trade-off. Using our model as a benchmark, we analyze the institutional incentives at play for the allocation of political prerogatives in Europe and conclude that the EU has gone too far on most issues.

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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4553012.

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Date of creation: 1999
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Publication status: Published in Carnegie-Rochester Conference Series on Public Policy
Handle: RePEc:hrv:faseco:4553012

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  1. Enrico Spolaore & Alberto Alesina & Romain Wacziarg, 2000. "Economic Integration and Political Disintegration," American Economic Review, American Economic Association, vol. 90(5), pages 1276-1296, December.
  2. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  3. Eijffinger, Sylvester C W & Hoeberichts, Marco & Schaling, Eric, 2000. "A Theory of Central Bank Accountability," CEPR Discussion Papers 2354, C.E.P.R. Discussion Papers.
  4. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
  5. Alberto Alesina & Reza Baqir & William Easterly, 1997. "Public Goods and Ethnic Divisions," NBER Working Papers 6009, National Bureau of Economic Research, Inc.
  6. Maurice Obstfeld., 1998. "EMU: Ready, or Not?," Center for International and Development Economics Research (CIDER) Working Papers C98-101, University of California at Berkeley.
  7. Alberto Alesina & Nouriel Roubini & Gerald D. Cohen, 1997. "Political Cycles and the Macroeconomy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510944, December.
  8. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers 885, C.E.P.R. Discussion Papers.
  9. Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
  10. Alberto Alesina & Romain Wacziarg, 1997. "Openness, Country Size and the Government," NBER Working Papers 6024, National Bureau of Economic Research, Inc.
  11. Martin Feldstein, 1998. "The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability," NBER Working Papers 6150, National Bureau of Economic Research, Inc.
  12. Alessandra Casella & Jonathan S. Feinstein, 1990. "Public Goods in Trade: On the Formation of Markets and Political Jurisdictions," NBER Working Papers 3554, National Bureau of Economic Research, Inc.
  13. Ben-David, Dan, 1993. "Equalizing Exchange: Trade Liberalization and Income Convergence," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 653-79, August.
  14. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  15. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
  16. 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.
  17. De Grauwe, Paul, 1996. "Monetary union and convergence economics," European Economic Review, Elsevier, vol. 40(3-5), pages 1091-1101, April.
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