This paper studies the macroeconomic consequences of alternative policy regimes in a closed economy where a central bank,
a fiscal authority and a monopoly union interact via their effects on output and inflation. The analysis compares macroeconomic
outcomes in a non-cooperative setting, where players may move sequentially or simultaneously, and in a regime of cooperation
between the government and wage-setters. The cooperative regime captures a climate of accord among social parties that is
finalised at common macroeconomic targets in the tradition of corporatism, as in the recent experience of "social pacts" in
many European countries. The paper makes two main contributions. First, it shows that macroeconomic outcomes are suboptimal
in the non-cooperative regime and may deliver extreme (undesirable) results even when all players share common ideal targets
for output and inflation. All players would be better off with a less extreme value for output or inflation, yet they fail
to reach a more advantageous allocation as long as there is an inherent conflict among their further objectives. Moreover,
the result is robust to a change in the degree of central bank's conservatism. Second, I find that cooperation between the
government and the monopoly union towards common ideal targets for inflation, output and taxes enhances social welfare even
in the absence of explicit coordination with the central bank.
Forschungsbereich:Arbeitsmarktökonomie, Einkommen und soziale Sicherheit