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European Integration and Employment: A New Role for Active Fiscal Policies?

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Author Info
Gatti, Donatella () (University of Lille 2, MODEM and CEPREMAP)

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Abstract

This paper theoretically investigates the impact of European integration on employment by developing a new-keynesian model where fiscal policy effectively reduces firms’ market power. Stronger product market competition is shown to reduce the marginal ability of governments to improve employment through public consumption. As competition crowds out fiscal spending, the positive impact of markets integration on employment is weakened. Moreover, in a context where national goods’ demand becomes "global", the marginal benefit for each national fiscal authority of increasing public consumption is lower than the marginal benefit for the community. This result stresses one source of coordination failure within the EMU.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 497.

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Length: 26 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:iza:izadps:dp497

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Related research
Keywords: product market integration; fiscal policy; coordination; equilibrium unemployment;

Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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This page was last updated on 2009-12-14.

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