On Deficits and Symmetries in a Fiscal Capacity
Weichenrieder, Alfons J.
MetadataShow full item record
"There is a growing debate about complementing the European Monetary Union by a more comprehensive fiscal union. Against this background, this paper emphasizes that there is a trade-off in designing a system of fiscal transfers (""fiscal capacity"") in a union between members of different size. A system cannot guarantee symmetric treatment of members and simultaneously ensure a balanced budget. We compute hypothetical transfers for the Eurozone members from 2001 to 2012 to illustrate this trade-off. Interestingly, a symmetric system that treats shocks in small and large countries symmetrically would have produced large budgetary surpluses in 2009, the worst year of the financial crisis."
fiscal union, asymmetric shocks, federal transfers, optimum currency area
Link to Publication
- LIF-SAFE Working Papers