The macroeconomics of social pacts*

In this paper we analyze macroeconomic interactions between trade unions, the central bank and the \u85scal policymaker. We explicitly model unionsconcern for public expenditure, paving the way for an analysis of the potential gains from cooperation between the \u85scal pol-icymaker and the unions, i.e. the so-called corporatist or social pacts that have characterized economic policies in a number of European countries in the last few decades. We also highlight the profoundly di¤erent incentives generated by institutional arrangements such as the Maastricht criteria and the Stability and Growth Pact. The for-mer has unambiguously induced more e ¢ cient outcomes; the latter is likely to back\u85re