Working Paper: CEPR ID: DP3913
Authors: Alberto F. Alesina; Ignazio Angeloni; Federico Etro
Abstract: We model an international union as a group of countries deciding together on the provision of public goods or policies that generate spillovers across members. The trade-off between benefits of coordination and loss of independent policy-making endogenously determines size, composition and scope of the union. Policy uniformity reduces the union?s size, may block enlargement processes and induce excessive centralization. We study flexible rules with non-uniform policies that reduce these inefficiencies focusing on arrangements relevant in the context of existing unions or federal states, like enhanced cooperation, subsidiarity, federal mandates and earmarked grants.
Keywords: European Union; Federalism; International Unions; Political Economy
JEL Codes: D78; H11; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trade-off between benefits of coordination and loss of independent policymaking (H77) | size and composition of the union (J51) |
| policy uniformity increases (L49) | size of the union (J51) |
| rigid unions generate inefficiencies (J51) | reduction in equilibrium size (D59) |
| rigid unions generate inefficiencies (J51) | bias towards excessive centralization (H77) |
| flexible rules (P37) | mitigate inefficiencies of rigid unions (J51) |
| flexible rules (P37) | improve resource allocation (D61) |
| flexible rules (P37) | increase size of the union (J51) |