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Economic Integration, Imperfect Competition, and International Policy Coordination

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  • Holmlund, Bertil

    (Department of Economics)

  • Kolm, Ann-Sofie

    (Department of Economics)

Abstract

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.

Suggested Citation

  • Holmlund, Bertil & Kolm, Ann-Sofie, 1999. "Economic Integration, Imperfect Competition, and International Policy Coordination," Working Paper Series 1999:7, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:1999_007
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    References listed on IDEAS

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    1. Jan Sørensen, 1994. "Market integration and imperfect competition in labor and product markets," Open Economies Review, Springer, vol. 5(1), pages 115-130, March.
    2. Devereux, Michael B, 1991. "The Terms of Trade and the International Coordination of Fiscal Policy," Economic Inquiry, Western Economic Association International, vol. 29(4), pages 720-736, October.
    3. Turnovsky, Stephen J., 1988. "The gains from fiscal cooperation in the two-commodity real trade model," Journal of International Economics, Elsevier, vol. 25(1-2), pages 111-127, August.
    4. Danthine, Jean-Pierre & Hunt, Jennifer, 1994. "Wage Bargaining Structure, Employment and Economic Integration," Economic Journal, Royal Economic Society, vol. 104(424), pages 528-541, May.
    5. Bertil Holmlund & Ann-Sofie Kolm, 2000. "Environmental Tax Reform in a Small Open Economy With Structural Unemployment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(3), pages 315-333, May.
    6. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
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    8. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
    9. Andersen, Torben M. & Rasmussen, Bo Sandemann & Sorensen, Jan Rose, 1996. "Optimal fiscal policy in open economies with labour market distortions," Journal of Public Economics, Elsevier, vol. 63(1), pages 103-117, December.
    10. Lockwood, Ben, 1993. "Commodity tax competition under destination and origin principles," Journal of Public Economics, Elsevier, vol. 52(2), pages 141-162, September.
    11. Holmlund, B. & Kolm, A.-S., 1999. "Economic Integration, Imperfect Competition, and International Policy Coordination," Papers 1999:7, Uppsala - Working Paper Series.
    12. Driffill, John & van der Ploeg, Frederick, 1993. "Monopoly Unions and the Liberalisation of International Trade," Economic Journal, Royal Economic Society, vol. 103(417), pages 379-385, March.
    13. Bertil Holmlund, 1997. "Macroeconomic Implications of Cash Limits in the Public Sector," Economica, London School of Economics and Political Science, vol. 64(253), pages 49-62, February.
    14. Huizinga, Harry, 1993. " International Market Integration and Union Wage Bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(2), pages 249-255.
    15. Lockwood, Ben, 2001. "Tax competition and tax co-ordination under destination and origin principles: a synthesis," Journal of Public Economics, Elsevier, vol. 81(2), pages 279-319, August.
    16. Naylor, Robin, 1998. "International trade and economic integration when labour markets are generally unionised," European Economic Review, Elsevier, vol. 42(7), pages 1251-1267, July.
    17. Kolm, Ann-Sofie, 1998. "Differentiated payroll taxes, unemployment, and welfare," Journal of Public Economics, Elsevier, vol. 70(2), pages 255-271, November.
    18. Andersen, Torben M. & Sorensen, Jan Rose, 1995. "Unemployment and fiscal policy in an economic and monetary union," European Journal of Political Economy, Elsevier, vol. 11(1), pages 27-43, March.
    19. Driffill, John & van der Ploeg, Frederick, 1995. " Trade Liberalization with Imperfect Competition in Goods and Labour Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(2), pages 223-243, June.
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    Cited by:

    1. Bertil Holmlund, 2002. "International spillover effects of sectoral tax differentiation in unionized economies," Oxford Economic Papers, Oxford University Press, vol. 54(2), pages 207-229, April.
    2. Holmlund, B. & Kolm, A.-S., 1999. "Economic Integration, Imperfect Competition, and International Policy Coordination," Papers 1999:7, Uppsala - Working Paper Series.
    3. Torben M. Andersen, "undated". "International Integration and the Welfare State," Economics Working Papers 2002-2, Department of Economics and Business Economics, Aarhus University.
    4. André Fourçans & Thierry Warin, 2001. "Tax Harmonization versus Tax Competition in Europe: A Game Theoretical Approach," Cahiers de recherche CREFE / CREFE Working Papers 132, CREFE, Université du Québec à Montréal.

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    More about this item

    Keywords

    Economic integration; imperfect competition; wage determination; policy cooperation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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