Publication

This paper considers the impact of interactions between competitiveness, fiscal policy and monetary institutions in the presence of unionized labor markets on economic outcomes and welfare in the long run. The authors analyze the impact of exogenously given labor taxes and unemployment benefits on the choice of monetary policy by the central bank, on the choice of nominal wages by unions, on the choice of prices by monopolistically competitive firms and through them on unemployment, inflation and welfare. In addition they assess how labor taxes and redistribution are chosen by a fiscal authority whose objectives are a weighted average of social welfare and of catering to the interests of political supporters.