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Is Fiscal Policy Coordination in EMU Desirable?

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Author Info
Beetsma, Roel
Debrun, Xavier
Klaassen, Frank

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Abstract

It is widely argued that Europe's unified monetary policy calls for the international coordination at the fiscal level. We survey the issues involved with such coordination of fiscal policy as a demand management tool and we use a simple model to investigate the circumstances under which coordination may be desirable. It turns out that coordination is beneficial when the correlation of the shocks hitting the various economies is low. However, given the potentially adverse reaction by the ECB (as a result of free-riding and/or a conflict on the orientation of the policy mix), fiscal coordination is likely to be counterproductive when demand or supply shocks are highly symmetric across countries and the governments are unable to acquire a strategic leadership position vis-a-vis the ECB.

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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 599.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_599

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Related research
Keywords: EMU fiscal coordination shocks demand management

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
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    Other versions:
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    Other versions:
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  7. Beetsma, Roel M W J & Bovenberg, A Lans, 2001. "The Optimality of a Monetary Union without a Fiscal Union," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 179-204, May.
    Other versions:
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  22. Beetsma, Roel M. W. J. & Lans Bovenberg, A., 1998. "Monetary union without fiscal coordination may discipline policymakers," Journal of International Economics, Elsevier, vol. 45(2), pages 239-258, August. [Downloadable!] (restricted)
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  23. Milesi-Ferretti, Gian Maria, 2001. "Good, Bad or Ugly? On the Effects of Fiscal Rules with Creative Accounting," CEPR Discussion Papers 2663, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Uhlig, Harald, 2002. "One Money, but Many Fiscal Policies in Europe: What Are the Consequences?," CEPR Discussion Papers 3296, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2005. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Macroeconomics 0504024, EconWPA. [Downloadable!]
  3. René Cabral-Torres, . "Monetary and Fiscal Policy Coordination," Discussion Papers 05/28, Department of Economics, University of York. [Downloadable!]
  4. Tilman Brück & Andreas Cors & Klaus F. Zimmermann & Rudolf Zwiener, 2002. "Stability Criteria and Convergence : The Role of the System of National Accounts for Fiscal Policy in Europe," Discussion Papers of DIW Berlin 318, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  5. Tilman Brück & Rudolf Zwiener, 2004. "Fiscal Policy Rules for Stabilisation and Growth : A Simulation Analysis of Deficit and Expenditure Targets in a Monetary Union," Discussion Papers of DIW Berlin 427, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  6. Massimo Giuliodori & Roel Beetsma, 2004. "What are the spill-overs from fiscal shocks in Europe? An empirical analysis," Working Paper Series 325, European Central Bank. [Downloadable!]
  7. Xavier Debrun & Francesca Castellani, 2001. "Central Bank Independence and the Design of Fiscal Institutions," IMF Working Papers 01/205, International Monetary Fund. [Downloadable!]
  8. Albert van der Horst, 2003. "Structural Estimates of Equilibrium Unemployment in Six OECD Economies," Economics Working Papers 022, European Network of Economic Policy Research Institutes. [Downloadable!]
    Other versions:
  9. van Aarle, Bas & Di Bartolomeo, Giovanni & Engwerda, Jacob & Plasmans, Joseph, 2002. "Staying Together or Breaking Apart: Policy-makers' Endogenous Coalitions Formation in the European Economic and Monetary Union," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  10. Matteo Governatori & Sylvester Eijffinger, 2004. "Fiscal and Monetary Interaction: The Role of Asymmetries of the Stability and Growth Pact in EMU," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  11. Fritz Breuss, 0002. "Was ECB's Monetary Policy Optimal?," WIFO Working Papers 173, WIFO. [Downloadable!]
  12. Jean-Paul Fitoussi & Francesco Saraceno, 2002. "A Theory of Social Custom of Which Soft Growth May Be One Consequence. Tales of the European Stability Pact," Documents de Travail de l'OFCE 2002-07, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
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    Other versions:
  14. Florin Bilbiie, 2005. "Fiscal Contracts for a Monetary Union," Economics Papers 2005-W11, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  15. Panagiotis Chronis & Aspassia Strantzalou, 2008. "Monetary and Fiscal Policy Interaction: What is the Role of the Transaction Cost of the Tax System in Stabilisation Policies?," Working Papers 71, Bank of Greece. [Downloadable!]
  16. Moïse Sidiropoulos & Eleftherios Spyromitros, 2006. "Fiscal Policy in a Monetary Union Under Alternative Labour-Market Structures," Working Papers of BETA 2006-25, Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg. [Downloadable!]
  17. Andersen, Torben M., . "The Macroeconomic Policy Mix in a Monetary Union with Flexible Inflation Targeting," Economics Working Papers 2003-2, School of Economics and Management, University of Aarhus. [Downloadable!]
  18. Xavier Debrun & Paul R. Masson & Catherine A. Pattillo, 2003. "Monetary Union in West Africa: Who Might Gain, Who Might Lose, and Why?," IMF Working Papers 02/226, International Monetary Fund. [Downloadable!]
    Other versions:
  19. Nicola Acocella & Giovanni Di Bartolomeo, 2003. "Is a conservative central banker a (perfect) substitute for wage coordination?," Macroeconomics 0307011, EconWPA. [Downloadable!]
    Other versions:
  20. Montserrat Ferré, 2004. "Multilateral surveillance in the Stability and Growth Pact: an analysis through information sharing," Economics Bulletin, Economics Bulletin, vol. 5(15), pages 1-7. [Downloadable!]
  21. Andersen, Torben M, 2002. "Fiscal Stabilization Policy in a Monetary Union with Inflation Targeting," CEPR Discussion Papers 3232, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  22. Jean-Paul Fitoussi & Francesco Saraceno, 2007. "Fiscal Discipline as a Social Norm: The European Stability Pact," Documents de Travail de l'OFCE 2007-22, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  23. Sabina Pogorelec, 2006. "Fiscal and monetary policy in the enlarged European Union," Working Paper Series 655, European Central Bank. [Downloadable!]
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