The Impact of EMU Enlargement on Structural Reforms: A Political Economy Approach

Louis Jaeck () and Sehjeong Kim ()

International Advances in Economic Research, 2014, vol. 20, issue 1, 73-86

Abstract: This paper analyzes the setting of labor market reforms in the European Monetary Union (EMU), as a political compromise pressured by the lobbying of business interests and trade unions. Using a common agency model of lobbying, we model the impact of distorted and non-distorted Central Bank monetary policy on EMU member state incentives to reform its labor market. Paradoxically, a majority of citizens who do not support the reform can lead to an optimal level of reform. We also show that, in a context of EMU enlargement, inflationary policy generates a status quo if there is a majority of non-supporters. Surprisingly, inflationary policy enhances the reform if the share of non-supporters over supporters increases, and weakens it if this share decreases. Copyright International Atlantic Economic Society 2014

Keywords: European Monetary Union; Lobbying; Common agency; Monetary policy; Structural reforms; D72; E52; E58 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11294-013-9449-5

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