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Federal fiscal transfers in monetary unions: A NOEM approach

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  • Michael Evers

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Abstract

In the debate over EMU, a widely accepted view is that a federal fiscal mechanism is needed for the participating states to cope with asymmetric shocks. In this paper, we explore the properties of federal fiscal transfer schemes with regard to their capability to stabilize national consumption, production and employment. We consider direct transfers among private sectors and indirect transfers among national fiscal authorities. We show that federal fiscal arrangements can provide perfect insurance. Our analysis builds on the New Open Economy Macroeconomics framework which allows us to portray the transmission of shocks and the properties of transfers in detail. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s10797-006-8949-0
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 13 (2006)
Issue (Month): 4 (August)
Pages: 463-488

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Handle: RePEc:kap:itaxpf:v:13:y:2006:i:4:p:463-488

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Monetary union; Asymmetric productivity and demand shocks; Regional economic stabilization; Federal fiscal arrangements;

References

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  1. Giancarlo Corsetti & Paolo Pesenti, 1997. "Welfare and Macroeconomic Interdependence," NBER Working Papers 6307, National Bureau of Economic Research, Inc.
  2. Lane, P, 1999. "The New Open Economy Macroeconomics: A Survey," Trinity Economics Papers 993, Trinity College Dublin, Department of Economics.
  3. Maurice Obstfeld & Kenneth Rogoff, 1994. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
  4. Ganelli, Giovanni & Lane, Philip R., 2002. "Dynamic General Equilibrium Analysis: The Open Economy Dimension," CEPR Discussion Papers 3540, C.E.P.R. Discussion Papers.
  5. Sachs, Jeffrey & Sala-i-Martin, Xavier, 1992. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe from the United States," CEPR Discussion Papers 632, C.E.P.R. Discussion Papers.
  6. Maurice Obstfeld & Kenneth Rogoff, 1999. "New Directions for Stochastic Open Economy Models," NBER Working Papers 7313, National Bureau of Economic Research, Inc.
  7. Gianluca Benigno & Pierpaolo Benigno, 2003. "Price Stability in Open Economies," Review of Economic Studies, Wiley Blackwell, vol. 70(4), pages 743-764, October.
  8. Benigno, Pierpaolo, 2004. "Optimal monetary policy in a currency area," Journal of International Economics, Elsevier, vol. 63(2), pages 293-320, July.
  9. Kletzer, Kenneth & von Hagen, Jürgen, 2000. "Monetary Union and Fiscal Federalism," CEPR Discussion Papers 2615, C.E.P.R. Discussion Papers.
  10. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  11. Hau, Harald, 2000. "Exchange rate determination: The role of factor price rigidities and nontradeables," Journal of International Economics, Elsevier, vol. 50(2), pages 421-447, April.
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Citations

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Cited by:
  1. Tervala, Juha, 2007. "Technology Shocks and Employment in Open Economies," Economics Discussion Papers 2007-40, Kiel Institute for the World Economy.
  2. Evers, Michael P., 2012. "Federal fiscal transfer rules in monetary unions," European Economic Review, Elsevier, vol. 56(3), pages 507-525.
  3. Tervala, Juha, 2007. "Technology Shocks and Employment in Open Economies (rev.)," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1(15 (Versi), pages 1-27.
  4. Tomasz Michalak & Jacob Engwerda & Joseph Plasmans, 2009. "Strategic Interactions between Fiscal and Monetary Authorities in a Multi-Country New-Keynesian Model of a Monetary Union," CESifo Working Paper Series 2534, CESifo Group Munich.

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