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One Scheme Fits All: A Central Fiscal Capacity for the EMU Targeting Eurozone, National and Regional Shocks

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  • Beetsma, Roel
  • Cimadomo, Jacopo
  • van Spronsen, Josha

Abstract

This paper proposes a central fiscal capacity for the euro area that generates transfers in response to eurozone, country, and region-specific shocks. The main novelty of this fiscal capacity is that it allows a joint response to these three types of shocks within a single scheme. Thus policymakers can decide on the stabilisation of one shock versus the others according to political and economic considerations. Based on NUTS3 regional data over the last two decades, our analysis shows that - with a limited risk of moral hazard - substantial stabilisation could have been achieved in response to the eurozone and regional shocks, while country-specific shocks were less severe and therefore needed less stabilisation. Aggregating the transfers over the three levels, they are in the order of magnitude of the EU’s Recovery and Resilience Facility, which was adopted in response to the Covid-19 pandemic.

Suggested Citation

  • Beetsma, Roel & Cimadomo, Jacopo & van Spronsen, Josha, 2022. "One Scheme Fits All: A Central Fiscal Capacity for the EMU Targeting Eurozone, National and Regional Shocks," CEPR Discussion Papers 16829, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16829
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    Cited by:

    1. Rodríguez-Vives Marta, 2023. "Towards a Common EU Debt: Where Do We Stand?," Intereconomics: Review of European Economic Policy, Sciendo, vol. 58(6), pages 305-310, December.

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    More about this item

    Keywords

    Central fiscal capacity; Macroeconomic stabilisation; Multilevel factor model; Bayesian inference;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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; Treasury Policy

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