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Smoothing Asymmetric Shocks vs. Redistribution in the Euro Area: A Simple Proposal for Dealing with Mistrust in the Euro Area

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  • Heikki Oksanen

Abstract

The euro area will not have a centralised budget and smoothing of country-specific asymmetric shocks via private financial markets will develop only slowly. Mistrust among the governments has caused rigid, even pro-cyclical fiscal policies. Smoothing mechanisms are absent due to the fear that the transfers would develop into permanent redistribution. For removing these deficiencies we propose a transfer mechanism to be managed in periods of seven years so that the cumulative balance of each country is cleared in equal instalments during the subsequent 7-year period. The transfers would smoothen asymmetric shocks and alleviate the rigidity of the fiscal rules.

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  • Heikki Oksanen, 2016. "Smoothing Asymmetric Shocks vs. Redistribution in the Euro Area: A Simple Proposal for Dealing with Mistrust in the Euro Area," CESifo Working Paper Series 5817, CESifo.
    • Handle: RePEc:ces:ceswps:_5817
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    Cited by:

    1. László Andor, 2022. "European unemployment insurance. From undercurrent to paradigm shift," Transfer: European Review of Labour and Research, , vol. 28(2), pages 267-283, May.
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    3. Florian Misch & Martin Rey, 2022. "The case for a loan-based euro area stability fund," Discussion Papers 20, European Stability Mechanism, revised 05 May 2022.
    4. Bole, Velimir & Oblak, Ana & Prašnikar, Janez & Trobec, Domen, 2018. "Financial frictions and indebtedness of Balkan firms: A comparison with Mediterranean and Central European countries," Journal of Policy Modeling, Elsevier, vol. 40(4), pages 790-809.
    5. Heikki Oksanen, 2018. "New Output Gap Estimates for Assessing Fiscal Policy with Lessons for Euro Area Reform," CESifo Working Paper Series 7287, CESifo.

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    More about this item

    Keywords

    euro; monetary union; smoothing shocks; fiscal transfers; government budget;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H10 - Public Economics - - Structure and Scope of Government - - - General

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