National Politics and International Agreements

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Working paper
Hubert Kempf and Stéphane Rossignol
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Centre d’Economie de la Sorbonne
International agreements about transnational issues are difficult to reach, as the examples of the Copenhagen summit or the never-ending discussions of the future of the European Union make clear. In this paper we relate this difficulty to the political process and the conflicts of interest attached to an agreement, both within and between national electorates, related to national income distributions. We set up a political economy model of a two-country world economy, where an international agreement on the financing of an international public good has to be negotiated by two elected national delegates. We prove that any international agreement involves higher taxes in both countries than in the case of no-agreement. If reachable, an IA may generate losers in either country. If the political process involves a constraint on tax rates, an agreement may or may not be reached. Finally, when an agreement is reached, it may exhibit strategic delegation when the median voters are the Condorcet winners in both countries: this delegation is the outcome of the struggle by electorates to transfer the tax burden to the other country’s taxpayers. In brief, the fate of an international agreements depends on national politics and distributive issues in the involved countries.
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