Wage and public expenditure setting in a monetary union

Nicola Acocella () and Giovanni Di Bartolomeo ()

No 42, Working Papers in Public Economics from Department of Economics and Law, Sapienza University of Roma

Abstract: European countries have progressively integrated from the point of view of trade and investment and have a common currency now. However, labour market and fiscal institutions have largely retained their national status. The aim of this paper is to examine:a) the possibility for trade unions of internalising external effects stemming from wage setting in a national context;b) the possibility for governments of internalising macroeconomic spillovers deriving from public expenditure at a national level;c) the interactions between fiscal and monetary authorities. We have found a certain gain in terms of employment only when unions cooperate and we are in a regime where the impact of domestic prices on employment through the terms of trade is higher than the impact of domestic prices on employment through the CPI; in this case, a gain in terms also of inflation may take place. In the case of co-operation between governments gains may accrue only in terms of employment or inflation to one or the other country, if the weights put by the governments on price stability are different. This occurs because the central bank, whose overriding objective is price stability, neutralises any rise in the price levels (as well as the positive effects on employment) deriving from the rise in the government expenditures of both countries that take place as a consequence of governments’ co-operation. This paper partially answers recent concern for considering multi-player contexts and asymmetries in open economy analyses. Here, in fact, several kinds of partial coalitions and the effects of asymmetries in players' preferences are studied.

Keywords: monetary union; policy co-ordination; unions; public expenditure; policy games. (search for similar items in EconPapers)
JEL-codes: E62 E64 F15 F42 (search for similar items in EconPapers)
Pages: 28
Date: 2001-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Wage and Public Expenditure Setting in a Monetary Union (2003)
Working Paper: Wage and public expenditure setting in a monetary union (2001)
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