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Earlier literature on tax competition and policy coordination typically assumes that the labor market is competitive; a description less suitable for Europe, where trade unions have had a strong position in the labor market for a long time. This paper concerns factor income taxation and public good provision in small open economies characterized by capital mobility and imperfect competition in the labor market. We assume that each national government collects public revenues via taxes on labor, capital and profit income, and that the revenues are spent on a public consumption good and a public input good, where the latter enters the economic system in terms of an `externality production factor'. The overall purposes are to characterize the tax and expenditure policies, if decided upon at the national level, and analyze the welfare effects of policy coordination with respect to taxes and public expenditures. Among the results, we show that tax coordination contributes to higher welfare if it reduces the net interest rate and the wage rate, and that the relative overprovision of the public input good derived by Keen and Marchand (1997) in the context of a competitive economy may no longer hold, if the labor market is non-competitive.

This paper addresses the effectiveness of fiscal policy at zero nominal interest rates. I analyze a stochastic general equilibrium model with sticky prices and rational expectations and assume that the government cannot commit to future policy. Real government spending increases demand by increasing public consumption. Deficit spending increases demand by generating inflation expectations. I derive fiscal spending multipliers that calculate how much output increases for each dollar of government spending (real or deficit). Under monetary and fiscal policy coordination, the real spending multiplier is 3.4 and the deficit spending multiplier is 3.8. However, when there is no policy coordination, that is, when the central bank is "goal independent," the real spending multiplier is unchanged but the deficit spending multiplier is zero. Coordination failure may explain why fiscal policy in Japan has been relatively less effective in recent years than during the Great Depression.

Traditionally the problem of macroeconomic coordination has been discussed as being best done by either free-market competition or controlled planning. Such a formulation ignores several alternatives that societies can employ to encourage growth. Usually the argument for or against free-market competition has been fought on ideological grounds rather than by ascertaining whether it is most appropriate in some sectors of the economy rather than in others. To do this requires some way of conceptualizing economic sectors that breaks away from traditional thinking. This article suggests a four-sector model and then argues that there are four styles of coordination, each of which is most appropriate in a particular sector. It is argued that there is no single way to maximize growth in an economy and that different coordination mechanisms should be employed in different market contexts.

In this article the economic and social impacts of the coordination of pensions and pension policy in the EU are analysed. Three different aspects are discussed: the coordination of the individual social security rights of migrant workers; the coordination of national social protection systems; and the coordination of economic and employment policies as far as they affect social security. With respect to the coordination of the individual social security rights of migrant workers, it is argued that this is a prerequisite for the free movement of workers in the EU. The article discusses the impacts of this coordination, such as impacts on pension payments arising from EC Regulation 883/2004 (formerly EC Regulation 1408/71), and the provision of international counselling events. It is noted that the Regulation covers not only old age pensions but also pensions in cases of reduced earning capacity and benefits for rehabilitation. The second area of coordination is implemented through the Open Method of Coordination (OMC). It is argued that, on the one hand, the OMC provides support to national governments to deal with the challenges of social security systems. On the other hand, the OMC also directly influences national social security policies, even though they are actually the responsibility of national authorities. Implications for national pension policy can also be found in the third area of coordination. Both Broad Economic Policy Guidelines and Employment Guidelines are used, which set targets which are relevant for pension policy, such as placing limits on public expenditure and the prolongation of working life. Finally it is argued that in the growing field of second- and third- pillar pension systems there is a need for further coordination.