The Political Economy of International Unions

53 Pages Posted: 22 Jan 2002

See all articles by Alberto F. Alesina

Alberto F. Alesina

Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Ignazio Angeloni

Italian Finance Ministry - International Financial Relations

Federico Etro

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Ministry of Economy, Italy

Multiple version iconThere are 2 versions of this paper

Date Written: January 2002

Abstract

We model an international union as a group of countries deciding together the provision of certain public goods and policies because of spillovers. The countries are heterogeneous either in preferences and/or in economic fundamentals. The trade-off between the benefits of coordination and the loss of independent policymaking endogenously determines the size, the composition and the scope of unions. Our model implies that the equilibrium size of the union is inversely related to the degree of heterogeneity between countries and to the spectrum of common policies. Hence, there is a trade-off between enlargement and deepening of coordination: a union involved in too many collateral activities will be favoured by few countries, while a union which focuses on a core of activities will be favoured by many countries. The political equilibrium implies a bias toward excessive centralization and small size of the union, however. This bias can be corrected if there is a constitutional commitment of the union to centralize only certain policies.

Keywords: Political economy, federalism, subsidarity, European union

JEL Classification: D78, H11, H41

Suggested Citation

Alesina, Alberto F. and Angeloni, Ignazio and Etro, Federico, The Political Economy of International Unions (January 2002). Available at SSRN: https://ssrn.com/abstract=297314

Alberto F. Alesina (Contact Author)

Harvard University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Ignazio Angeloni

Italian Finance Ministry - International Financial Relations ( email )

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Italy

Federico Etro

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-613-1230 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ministry of Economy, Italy ( email )

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Rome, Rome 00187
Italy

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