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Is Europe Going Too Far?

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Author Info
Alberto Alesina
Romain Wacziarg

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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. However, 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 may be 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6883.

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Date of creation: Jan 1999
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Handle: RePEc:nbr:nberwo:6883

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  1. 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. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
  3. Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December. [Downloadable!] (restricted)
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  4. Maurice Obstfeld., 1998. "EMU: Ready, or Not?," Center for International and Development Economics Research (CIDER) Working Papers C98-101, University of California at Berkeley.
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  5. 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.
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  6. Alberto Alesina & Reza Baqir & William Easterly, 1997. "Public Goods and Ethnic Divisions," NBER Working Papers 6009, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Eijffinger, S.C.W. & Hoeberichts, M. & Schaling, E., 1998. "A theory of Central Bank accountability," Discussion Paper 103, Tilburg University, Center for Economic Research. [Downloadable!]
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  8. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
  10. Alberto Alesina & Romain Wacziarg, 1997. "Openness, Country Size and the Government," NBER Working Papers 6024, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October. [Downloadable!] (restricted)
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  12. 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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  13. Alberto Alesina & Enrico Spolaore & Romain Wacziarg, 1997. "Economic Integration and Political Disintegration," NBER Working Papers 6163, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
  15. Eijffinger, S-C-W & de Haan, J, 1996. "The Political Economy of Central-Bank Independence," Princeton Studies in International Economics 19, International Economics Section, Departement of Economics Princeton University,.
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