DP3913 International Unions

Author(s): Alberto F Alesina, Ignazio Angeloni, Federico Etro
Publication Date: May 2003
Keyword(s): european union, federalism, international unions, political economy
JEL(s): D78, H11, H41
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3913

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.