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

Author

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  • Gatti, Donatella

    (University of Paris 13)

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.

Suggested Citation

  • Gatti, Donatella, 2002. "European Integration and Employment: A New Role for Active Fiscal Policies?," IZA Discussion Papers 497, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp497
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    More about this item

    Keywords

    equilibrium unemployment; coordination; fiscal policy; product market integration;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • 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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