International Policy Cooperation Research Articles

The Role of International Public Goods in Tax Cooperation

We provide a quantitative assessment of the welfare cost of tax competition or, equivalently, the welfare benefit of international tax policy cooperation. We use a simple multi-country general equilibrium model of a world economy, in which there are two types of cross-country spillovers: the first one generated by the international capital mobility and, the second one, by the presence of international public goods. In the absence of international public goods, although welfare in the non-cooperative case is typically lower than in the cooperative case, the welfare difference is negligible quantitatively. Things change drastically, both quantitatively and qualitatively, once we introduce international public goods. Now, there can be big benefits from cooperation and welfare effects cease to be monotonic. (JEL classification codes: F02, H2, H4)

Revitalizing Global Environmental Governance for Climate Change

Whether the December 2009 negotiations in Copenhagen produce or real success (1)--that is to say, merely a foundation for further negotiations or a full-blown new post-Kyoto Protocol climate change agreement--the world seems headed for a period of extraordinary international environmental activity with implications for every nation, community, business, and individual on the planet. The scale, complexity, and potential cost of responding to the threat of climate change make this a policy challenge of unprecedented proportions. And it is becoming increasingly clear that the worldwide effort to reduce greenhouse gas emissions and mitigate the threat of global warming and related problems, including changed rainfall patterns, melting polar ice, sea-level rise, and increased intensity of windstorms, will not be successful without significant institutional support at the global scale. The existing global environmental governance system, centered on the UN Environment Programme (UNEP) in Nairobi, is by almost all accounts not up to the task of managing the response to climate change. UNEP suffers from a vague mandate, severe budget constraints, limited analytic capacity, and other human resource challenges as well as a lack of political support. UNEP has a record of success in some respects, notably in shepherding the process that led to the Montreal Protocol and a series of subsequent amendments that helped phase out chlorofluorocarbons (CFCs) and other chemicals that threatened the world's protective ozone layer. But in recent years, UNEP has not been a major player on climate change. Indeed, fragmentation is one of the fundamental problems of our current regime of global environmental Dozens of organizations have some degree of environmental responsibility, including the UN Commission on Sustainable Development, UN Development Programme (UNDP), the World Bank and other multilateral development banks, and numerous environmental treaty secretariats. But these various entities often do not play well together. There has been little attempt to set consistent priorities, achieve a systematic division of labor, rationalize budgets, or pursue synergies across issues. Moreover, there has been little policy coordination between global-scale economic decisionmaking and parallel efforts at worldwide environmental protection. A successful global response to climate change will therefore require broad-scale revitalization of the global environmental governance regime. (2) In fact, the urgent need for strengthened environmental cooperation across the world in response to climate change offers an opportunity to rethink global governance more broadly. In this regard, now may be the time to launch a Global Environmental Organization (GEO), based on a new international organization model. Rather than a ramped-up UNEP, I envision a GEO that is leaner and more focused, and which subsumes existing environmental treaty secretariats and consolidates within it the UN Commission on Sustainable Development. It would have a small permanent staff in Geneva and a substantial virtual presence, drawing in expertise from around the world in an evolving set of global public policy networks. To be effective, the new international organization would need clear goals, a compelling set of core principles, carefully specified functions and capacities, and a strong commitment to good governance. Goals Any reform of the global environmental governance structure needs to emphasize effectiveness, efficiency, and equity. These goals seem straightforward, yet past international environmental policy cooperation efforts have fallen short on all three of these elements. With a few notable exceptions (such as the Montreal Protocol), the existing regime has produced many meetings and some agreements, but few concrete improvements in environmental performance. Principles Successful international organizations have clear guiding principles. …

International Monetary Policy Cooperation Revisited: Conservatism and Non-Atomistic Wage Setting

This paper presents a simple model of policy coordination in line with the New Open Economy Macroeconomics literature. I extent the analysis on non-cooperative toward cooperative solutions by incorporating a collective wage bargaining system and conservative central banks. It turns out that previous results on international monetary policy cooperation are modified such that cooperation is welfare improving. The finding in the model relies on wage setters’ perceptions about affecting monetary policy. It is shown that under cooperation wage setters perceive a tighter monetary policy, thereby inducing wage restraints.

Reflections on Monetary Policy in the Open Economy

Aperennial topic of discussion among scholars and policymakers is how best to think about a benchmark for macroeconomics as it applies to monetary policy. Should the benchmark for policy analysis be the open economy with international interest rate linkages and flexible exchange rates (after all, major economies are in fact open with flexible exchange rates), or should it be the closed economy in which such linkages and exchange rate adjustments are assumed away? Of course, few if any policy makers would seek to guide policy by ignoring capital flows and exchange rates, but in many cases it appears as though the starting point for analysis is the closed‐economy macro model, these days a variant of the dynamic new Keynesian model. Those who start from a closed‐economy framework often have questions about how “openness” influences the analysis. How does the neutral real interest depend on “global” developments? Is the Phillips curve trade‐off between inflation and domestic output better or worse in the open versus the closed economy? Is “potential GDP” a function of global developments, or only of domestic resources available and domestic productivity? Perhaps most important, how—if at all—does openness influence the optimalmonetary policy rule? Is a Taylor rule the rightmonetary policy for an open economy? In 2002 Jordi Gali, Mark Gertler, and I published a paper in the Journal of Monetary Economics that developed a benchmark (at least in ourway of thinking) dynamic two‐country optimizing macro model of optimal monetary policies in the open economy. Our focus in that paper was deriving optimal policy rules in the two‐country model and assessing the gains from international monetary policy cooperation. In that paper, we emphasized the following implications of the model:

Translating Sustainable Development: The Greening of Japan's Bilateral International Cooperation

This article considers how the sustainable development paradigm of the 1990s has been transferred from Western donor circles to a non-Western donor, Japan, and has been “translated” in the implementation of Japan's international cooperation policy. In so doing, the article discusses issues of “greening” with relation to foreign aid, and more specifically Japan's bilateral international cooperation. It highlights how dynamics of cultural politics specific to an individual country (i.e. Japan) condition the ways in which its perception and practice of “sustainable development” unfold across time and space, and between a multitude of state and nonstate actors that crisscross national boundaries. Such conditions, in turn, emphasize the importance of understanding different ways of institutional learning (or adaptation) in Japan's international cooperation system for dealing with the socio-environmental aspects of its projects.

Climate Change and Global Environmental Governance

Elizabeth R. DeSombre, Global Environmental Institutions (New York: Routledge, 2006). James Gustave Speth and Peter M. Haas, Global Environmental Governance (Washington, DC: Island Press, 2006). Pamela S. Chasek, David L. Downie, and Janet Welsh Brown, Global Environmental Politics, 4th ed. (Boulder: Westview Press, 2006). Richard E. Saunier and Richard A. Meganck, Dictionary and Introduction to Global Environmental Governance (London: Earthscan, 2007). Global environmental governance has emerged as a hot topic in scholarly circles. The manifest inadequacy of international policy cooperation in response to transboundary pollution problems and the need for better management of shared natural resources has led to a flurry of academic writing. Scholars in environmental studies, political science, international relations, and law are now critically analyzing the structure and effectiveness of the international environmental regime and efforts to address change, declining fisheries, deforestation, loss of biodiversity, the spread of toxic chemicals, and other issues. These problems have also captured attention in the public arena. Al Gore won the Nobel Peace Prize for his efforts to focus the public on the climate crisis. His book An Inconvenient Truth and related movie have won numerous awards. Adding to this arc of interest, a number of scholarly books that seek to illuminate the institutions, legal structures, and politics that shape global-scale environmental policymaking have been released over the past several years. The logic of collective action in the international environmental arena is clear. Absent cooperation, the spillover of pollution from one country onto its neighbors or into the shared space of the global commons, as well as the over-exploitation of shared natural resources, promise not just environmental degradation but also economic inefficiency, political instability, and diminished social welfare. Ecological interdependence, expanded economic inter-linkages, and tensions at the trade-environment interface have also made environmental cooperation an important element in the process of establishing the terms of engagement for international commerce. (1) The world community's failure to stem the buildup of greenhouse gas emissions in the atmosphere and resulting fears that the world is suffering the effects of change--global warming, sea level rise, increased intensity of windstorms, changed rainfall patterns, and other problems--add urgency to the quest for a better-functioning international environmental regime. All of the books surveyed in the following paragraphs find negative trend lines with regard to environmental cooperation, with the exception of efforts to phase out chlorofluorocarbons (CFCs) and other chemicals that destroy the ozone layer. Understanding which international environmental efforts are effective--and why--thus takes on a degree of urgency among issues of global policymaking. Unfortunately, these recent books, while beginning to explore the contours of this important question, do too little to help us understand how to move forward and build a more effective international environmental regime. Nevertheless, the works reviewed provide an important starting point for this critical inquiry. Elizabeth DeSombre's Global Environmental Institutions offers a thorough tour of the existing structure of environment-related international organizations. As part of the Global Institutions Series, edited by Thomas Weiss and Rorden Wilkinson, the book provides a useful history of the UN Environment Programme (UNEP), although some of the details of her analysis have been disputed. (2) DeSombre illuminates the governance, financing, and scientific efforts of UNEP and also reviews the Earth Summits, (3) which have helped structure the international community's thinking about environmental challenges over the past forty years. …

The Role of Emigration in Foreign Aid Policies: The Case of Spain and Morocco

AbstractThis article analyses the relationships between emigration and Official Development Aid (ODA) policies, taking the cases of Spain and Morocco as the backdrop to the study. It discusses the principal characteristics of both the Spanish state and non‐governmental cooperation in Morocco, the underlying motivations of the principal stakeholders, and the way international cooperation policies now encompass the phenomenon of emigration. The paper compares the field of co‐development, which encompasses a rather limited understanding of immigration, with ODA policies, in which immigration is an increasingly important agenda item for both the central government and the Spanish autonomous communities. The article then examines the relationship between migration and development, and considers necessary changes of perspective required to enhance the development and emigration policies in both Spain and Morocco. Lastly, we conclude with a series of recommendations, based on our analysis, aimed at Spanish and Moroccan stakeholders, both state institutions and non‐governmental organizations.

International Spillover Effects of Sectoral Tax Differentiation in Unionized Economies

The European Union has recently proposed sectoral tax differentiation as a policy to fight unemployment. The member countries are allowed to reduce the VAT rates on goods and services that are particularly labor intensive and price elastic. The paper provides a theoretical analysis of the effects of such tax reforms, with particular emphasis on the international repercussions of the policies. To that end we develop a two-country and two-sector model with monopolistic competition in the goods market and wage bargaining in the labor market. Policy externalities operate through the endogenously determined terms of trade. We examine how national and supranational commodity tax policies affect sectoral and total employment and characterize optimal commodity taxes with and without international policy cooperation. Some rough estimates of the welfare gains from policy coordination are also presented, using a calibrated version of the model.

International Transmission and Monetary Policy Cooperation

We use a version of the New Area-Wide Model (NAWM) developed at the ECB in order to quantify the gains from monetary policy cooperation. The model is calibrated in order to match a set of empirical moments. We then derive the cooperative and (open-loop) Nash monetary policies, assuming that the central banks' objectives is to maximize the welfare of the households. Our results show that given the current degree of openness of the US and euro area economies, the gains from monetary policy coordination are small, amounting to 0.03 percent of steady-state consumption. Nevertheless, the gains appear to be sensitive to the degree of openness and further economic integration between the two regions could generate sizable gains from cooperation. For example, increasing the trade shares to 32 percent of GDP in both regions, the gains from cooperation rise to about 1 percent of steady-state consumption. By decomposing the sources of the gains from cooperation with respect to the various shocks, we show that mark-up shocks are the most important source for gains from international monetary policy cooperation.

Powerless Europe: Why is the Euro Area Still a Political Dwarf?*

Although Europe’s external representation in the field of economic policy is the subject of ongoing discussions, progress is being achieved at a very slow pace. There are two main reasons. First, the degree of European integration differs substantially, depending on both the policy and on the group of countries concerned. While some policies, like monetary, trade and competition, are within the competence of European institutions, others, like fiscal and structural policies, which are also part of international policy cooperation, remain largely the competence of the Member States. Furthermore, not all 25 countries currently participate to the same extent in policy cooperation and integration within the European Union. The most obvious case is that only 12 countries participate in the euro area. This makes the issue of external representation of economic policies quite a complicated endeavour.

Designing targeting rules for international monetary policy cooperation

This study analyzes a two-country dynamic general equilibrium model with nominal rigidities, monopolistic competition and producer currency pricing. A quadratic approximation to the utility of the consumers is derived and assumed as the policy objective function of the policymakers. It is shown that only under special conditions there are no gains from cooperation and moreover that the paths of the exchange rate and prices in the constrained-efficient solution depend on the kind of disturbance that affects the economy. Despite this result, simple targeting rules that involve only targets for the growth of output and for both domestic GDP and CPI inflation rates can replicate the cooperative allocation.

A cooperação científica internacional na Amazônia

Apesar dos seus cinqüenta anos, foi somente na última década que começaram a vir a público diversos trabalhos abordando distintos aspectos que, direta ou indiretamente, tratam da cooperação científica internacional do Instituto Nacional de Pesquisas da Amazônia (Inpa, um dos institutos de pesquisa governamentais mais antigos da região, fundado em 1954. São dissertações, teses, artigos, monografias, pesquisas de opinião, avaliações, estudos, relatórios de comissões criadas pelo MCT e planos institucionais. De uma forma geral, esses trabalhos são bastante críticos; os problemas apontados, recorrentes; e as soluções propostas nunca implementadas. Este artigo é parte da busca de comprovação da hipótese de que a política de cooperação científica internacional na Amazônia sofreu uma inflexão com a edição do Dec. 98.830/90 e da Portaria do MCT que o regularizou (Portaria 55/90), editada no œltimo dia do governo Sarney (1985-1990).

Ramsey Monetary Policy and International Relative Prices

We analyze welfare maximizing monetary policy in a dynamic two-country model with price stickiness and imperfect competition. In this context, a typical terms of trade externality affects policy interaction between independent monetary authorities. Unlike the existing literature, we remain consistent to a public finance approach by an explicit consideration of all the distortions that are relevant to the Ramsey planner. This strategy entails two main advantages. First, it allows an accurate characterization of optimal policy in an economy that evolves around a steady-state which is not necessarily efficient. Second, it allows to describe a full range of alternative dynamic equilibria when price setters in both countries are completely forward-looking and households' preferences are not restricted. In this context, we study optimal policy both in the long-run and along a dynamic path, and we compare optimal commitment policy under Nash competition and under cooperation. By deriving a second order accurate solution to the policy functions, we also characterize the welfare gains from international policy cooperation.

Monetary and fiscal interactions in open economies

A two-country sticky-price model is used to analyse the interactions between fiscal and monetary policy. The role of an `activist' fiscal policy as a stabilisation tool is considered and a measure of the welfare gains from international fiscal policy cooperation is derived. It is found that welfare gains from fiscal cooperation do exist provided monetary policy is set cooperatively. There are also welfare gains from fiscal policy cooperation in a monetary union. However, it is found that a `non-activist' fiscal policy can be better than non-cooperative fiscal policy when the international correlation of shocks is strongly negative. And non-cooperative fiscal policy can be better than cooperative fiscal policy if monetary policy is not set cooperatively.

Externalities, international policy cooperation and systems competition

Generally, the primary goal of international policy cooperation is to prevent nations from pursuing mutually harmful policies. This paper states this imperative more precisely. Assuming that the primary goal of national economic policy is to internalise externalities, production possibility frontier (PPF) expanding and PPF-contracting internalisation policies are distinguished. In a simple general equilibrium framework, Pareto-inefficient internalisation policies are modelled. The model shows that a country's natural response to another country's Pareto-inefficient PPF-expanding or PPF-contracting internalisation policy is to adopt the same policy. This leads to an alternating process of policy responses until a new equilibrium is reached. In a process of PPF-expanding (contracting) internalisation policies, the individual nation improves (worsens) its aggregate welfare level with every policy response. Consequently, only Pareto-inefficient PPF-contracting internalisation policies may qualify for international policy cooperation while PPF-expanding internalisation policies make the case for systems competition.

Ramsey Monetary Policy and International Relative Prices

We analyze welfare maximizing monetary policy in a dynamic two-country model with price stickiness and imperfect competition. In this context, a typical terms of trade externality affects policy interaction between independent monetary authorities. Unlike the existing literature, we remain consistent to a public finance approach by an explicit consideration of all the distortions that are relevant to the Ramsey planner. This strategy entails two main advantages. First, it allows an accurate characterization of optimal policy in an economy that evolves around a steady-state which is not necessarily efficient. Second, it allows to describe a full range of alternative dynamic equilibria when price setters in both countries are completely forward-looking and households' preferences are not restricted. In this context, we study optimal policy both in the long-run and along a dynamic path, and we compare optimal commitment policy under Nash competition and under cooperation. By deriving a second order accurate solution to the policy functions, we also characterize the welfare gains from international policy cooperation.

Welfare Effects of Tax Policy in Open Economies: Stabilization and Cooperation

This paper studies an international tax policy design problem by employing a two-country dynamic general equilibrium model with incomplete asset markets. We investigate the possibility of welfareimproving active tax policies, in particular capital and labor income tax, under the non-cooperative Nash equilibrium and the cooperative equilibrium. Unlike the conventional wisdom regarding stabilization policies, optimal tax policies in our economy are procyclical. Relative to the non-cooperative setting, international tax policy cooperation requires more active tax policies (about two times) and generates large extra welfare gains (by about a third).

The French–US space research cooperation in the early 1960s

This paper proposes to discuss space research cooperation between France and the United States as it existed at the beginning of the 1960s. Among NASA's missions, when created in 1958, was to conduct a policy of international cooperation. Great Britain and Canada responded rapidly to the NASA's proposals. With France, however, the situation was quite different. At that time, Paris wanted to develop large scale space research activities of its own. For this purpose, in January 1959, the French government created the “Comité des Recherches Spatiales”, which had two missions: to organize the space research in France and to participate in international space affairs. Although French research at that time was sufficiently advanced in sounding rockets and military missiles to develop a program whose objective was to create a national launcher, France's scientists did not really have enough experience in satellite design, unlike most other countries involved in space research during this period. At this time, several cooperative programs were initiated between France and the United States, in fields such as rocket experiments, visual observation satellites and satellites tracking. However, the first major cooperative program between the two countries concerned the development of a scientific satellite—later known as FR-1— which was launched in December 1965.

Designing Targeting Rules for International Monetary Policy Cooperation

This study analyses international monetary policy co-operation in a two-country dynamic general equilibrium model with nominal rigidities, monopolistic competition and producer currency pricing. A quadratic approximation to the utility of the consumers is derived and assumed as the policy objective function of the policymakers. It is shown that only under special conditions there are no gains from co-operation and moreover that the paths of the exchange rate and prices in the constrained-efficient solution depend on the kind of disturbance that affects the economy. It might be the case either for fixed or floating exchange rates. Despite this result, simple targeting rules that involve only targets for the growth of output and for both domestic GDP and CPI inflation rates can replicate the co-operative allocation.

Monetary and Fiscal Interactions in Open Economies

A two-country sticky-price model is used to analyse the interactions between fiscal and monetary policy. The role of an 'activist' fiscal policy as a stabilisation tool is considered and a measure of the welfare gains from international fiscal policy cooperation is derived. It is found that welfare gains from fiscal cooperation do exist provided monetary policy is set cooperatively. There are also welfare gains from fiscal policy cooperation in a monetary union. However, it is found that a 'non-activist' fiscal policy can be better than non-cooperative fiscal policy when the international correlation of shocks is strongly negative. And non-cooperative fiscal policy can be better than cooperative fiscal policy if monetary policy is not set cooperatively.