The effectiveness of partial coordination among decentralized institutions [Elektronische Ressource] / Sven Wehke

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• Publié par: otto-von-guericke-universitat_magdeburg
• Publié le: 01 janvier 2008
• Nombre de lectures: 18
• Langue: English

Extrait

The E⁄ectiveness of Partial
Coordination among Decentralized
Institutions
Sven Wehke
Inauguraldissertation
zur Erlangung des akademischen Grades
Doctor rerum politicarum
vorgelegt und angenommen an der
Fakult?t f?r Wirtschaftswissenschaft der
Otto-von-Guericke-Universit?t Magdeburg
Verfasser: Sven Wehke
Geburtsdatum und -ort: 23. M?rz 1978, Burg
Arbeit eingereicht am: 04. Oktober 2007
Gutachter der Dissertation: Prof. Dr. Ronnie Sch?b
Prof. Dr. Dr. h.c. Gerhard Schw?diauer
Datum der Disputation: 01. April 2008i
Acknowledgements
First of all, I would like to thank my academic teacher, Ronnie Sch?b, not only
for reading and commenting on my papers, but also for extensive discussions on all
parts of my thesis. I am grateful to my colleagues, Andreas Knabe and Jan K?nig,
for discussing ideas and clarifying (minor and major) questions.
The chapter Tax Competition and Partial Coordination was prepared for the
HECERWorkshopon?FiscalFederalism?inHelsinkiwhichwasorganizedbyErkki
Koskela and Panu Poutvaara. In particular, I would like to thank Erkki Koskela
for serving as a guest editor on a special issue of FinanzArchiv, where this chapter
has been published. The comments by two anonymous referees are also gratefully
acknowledged.
ThechapterPublicGoods, Unemployment andPolicyCoordination isbasedona
joint paper with Thomas Aronsson fromUme? University. It has been a pleasure to
workwithhimandIthankhimandthedepartmentofeconomicsatUme?University
for their hospitality. I am also grateful to Vidar Christiansen and Tomas Sj?gren
for helpful comments on this part.
The chapter Fighting Tax Competition in the Presence of Unemployment: Com-
plete versus Partial Tax Coordination bene?ted from helpful comments and sugges-
tions by Peter Birch Słrensen which is gratefully acknowledged.
Thisthesiswouldhaveneverbeenwrittenwithoutthehelpfromotherwonderful
people. Especially, I would like to thank my parents who have believed in me and
supported me all the time. Finally, I wish to express my loving thanks to Christina
who has been a great source of strength all through this thesis. I owe you much for
your love, time and support during that time. Your presence in my life provides a
fundamental sense of balance and happiness.
Magdeburg, October 4, 2007
Sven WehkeContents
1 Motivation and Outline 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.1 Systems competition . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.2 Some stylized facts . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1.3 The basic argument . . . . . . . . . . . . . . . . . . . . . . . . 4
1.1.4 Related literature . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.1.5 Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.2 Tax Competition and Partial Coordination . . . . . . . . . . . . . . . 15
1.3 Public Goods, Unemployment and Policy Coordination . . . . . . . . 18
1.4 Fighting Tax Competition in the Presence of Unemployment: Com-
plete versus Partial Tax Coordination . . . . . . . . . . . . . . . . . . 21
1.5 Union Wages, Hours of Work and the E⁄ectiveness of Partial Coor-
dination Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
1.6 Preliminary conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2 Tax Competition and Partial Coordination 26
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.2 The model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.3 Nash equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.3.1 Comparative static results . . . . . . . . . . . . . . . . . . . . 31
2.3.2 Welfare maximization. . . . . . . . . . . . . . . . . . . . . . . 31
2.4 Complete tax coordination . . . . . . . . . . . . . . . . . . . . . . . . 34
2.4.1 Coordinated increase in the capital tax . . . . . . . . . . . . . 34
2.4.2 Coordinated increase in the labor tax . . . . . . . . . . . . . . 35
2.5 Partial tax coordination . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.5.1 Partial coordination of the capital tax . . . . . . . . . . . . . 37
2.5.2 Partial coordination of the labor tax . . . . . . . . . . . . . . 41
2.6 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
iiiii
3 Public Goods, Unemployment and Policy Coordination 47
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.2 The model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.3 The non-cooperative Nash equilibrium . . . . . . . . . . . . . . . . . 52
3.4 Policy Coordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
3.4.1 Tax coordination . . . . . . . . . . . . . . . . . . . . . . . . . 56
3.4.2 A coordinated reform of government spending . . . . . . . . . 63
3.5 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
4 FightingTaxCompetitioninthePresenceofUnemployment: Com-
plete versus Partial Tax Coordination 73
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
4.2 The model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.3 The non-cooperative Nash equilibrium . . . . . . . . . . . . . . . . . 78
4.3.1 Wage bargaining . . . . . . . . . . . . . . . . . . . . . . . . . 78
4.3.2 Welfare maximization. . . . . . . . . . . . . . . . . . . . . . . 81
4.4 Complete tax coordination . . . . . . . . . . . . . . . . . . . . . . . . 84
4.4.1 Complete coordination of the capital tax . . . . . . . . . . . . 85
4.4.2 Complete coordination of the wage tax . . . . . . . . . . . . . 86
4.5 Partial tax coordination . . . . . . . . . . . . . . . . . . . . . . . . . 88
4.5.1 Partial coordination of the capital tax . . . . . . . . . . . . . 89
4.5.2 Partial coordination of the wage tax . . . . . . . . . . . . . . 95
4.6 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5 Union Wages, Hours of Work and the E⁄ectiveness of Partial Co-
ordination Agreements 105
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
5.2 The model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
5.3 Cooperation among decentralized unions . . . . . . . . . . . . . . . . 114
5.3.1 Full cooperation in the wage rate and the hours of work. . . . 114
5.3.2 Partial cooperation in the wage rate. . . . . . . . . . . . . . . 116
5.3.3 Partial cooperation in the hours of work . . . . . . . . . . . . 123
5.4 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Summary 132iv
References 134Chapter 1
Motivation and Outline
1.1 Introduction
1.1.1 Systems competition
In principle, economists should not be worried about the economic forces of compe-
tition. Under symmetric information, in the absence of increasing returns to scale,
market power, externalities and public goods, competition produces an outcome
that does not waste scarce resources. The ?rst theorem of welfare economics allows
us to conclude that the result will be Pareto-e¢ cient and a social planer cannot
do better in terms of e¢ ciency. In contrast, if one of the abovementioned precon-
ditions is not ful?lled, we have at least a theoretical justi?cation for government
intervention. The public economics literature has dealt with these issues in length
and has described how governments can intervene when private markets fail to pro-
vide a Pareto-e¢ cient allocation. If we take the optimistic view that governments
are benevolent and are able to correct market failures given the constraints it faces,
what can then be said about the competition between governments? Is this form of
competition innocuous since potential market failures have already been taken into
account by benevolent policy makers? Or does it introduce a distortion again?
If countries are connected by mobile factors of production, such as capital, the
answeristhatthe?systemscompetition?will(atleasttosomeextent)reintroducethe
distortion which the government initially aimed to correct. As has been described
by Sinn (2003), systems competition can take several forms. The most prominent
type in the recent literature is the case of ?scal competition, which reintroduces a
distortion in the following way. Given that a government is benevolent, it corrects a
market failure by providing public goods instead of leaving it to the private market.
Indoingso, itcollectstaxrevenueinawaythatpreventstheprivatesectortoeasily
1Motivation and Outline 2
avoid the tax liability. In its simplest form, we may think of the fact that taxes
are not designed to be a voluntary payment. Competition between countries for
tax revenue, i.e. opening up the borders between jurisdictions, now enables private
agents to avoid domestic contributions to the public good, which, in turn, weakens
the government?s position to provide a Pareto-e¢ cient allocation. In this sense,
competition between countries bears some resemblance to an attempt to provide
public goods by a p