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European Integration and Employment. The need for fiscal policies coordination

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  • Gatti, Donatella

    (University of Paris X ñ Nanterre)

Abstract

To investigate the consequences of European markets integration, this paper develops a neo-keynesian model where fiscal policies affect firms' market power and employment. 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 EMU.

Suggested Citation

  • Gatti, Donatella, 2002. "European Integration and Employment. The need for fiscal policies coordination," Royal Economic Society Annual Conference 2002 83, Royal Economic Society.
  • Handle: RePEc:ecj:ac2002:83
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