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Reflections on the Fiscal Implications of a Common Currency

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  • Buiter, Willem H
  • Kletzer, Kenneth

Abstract

This paper studies the likely consequences of monetary unification among the EC members for the conduct of fiscal policy in the EC countries (and by an emerging Federal European Fiscal Authority). Among the conclusions are the following. If the Eurofed is to be independent, the external exchange rate policy of the EC should be assigned to the Eurofed and not to the fiscal authorities. Effective (as opposed to formal) independence of the Eurofed is going to be very difficult to achieve. Coordinated upper ceilings on national public sector financial deficits are unnecessary and probably undesirable. Coordination of national public expenditure policies, tax policies and borrowing policies is in principle desirable for both efficiency and distributional reasons. The empirical models required for a serious welfare analysis of fiscal policy coordination do not yet exi.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 418.

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Date of creation: May 1990
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Handle: RePEc:cpr:ceprdp:418

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Keywords: Economic Integration; Exchange Rates; Policy Coordination;

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Citations

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Cited by:
  1. Willem H. Buiter, 1999. "Alice in Euroland," LSE Research Online Documents on Economics 20226, London School of Economics and Political Science, LSE Library.
  2. Patricia S. Pollard, 1993. "Macroeconomic policy effects in a monetary union," Working Papers 1993-001, Federal Reserve Bank of St. Louis.
  3. Jérôme Creel, 1999. "The stability pact and feedback policy effects," Sciences Po publications N°99-02, Sciences Po.
  4. Buiter, Willem H & Grafe, Clemens, 2002. "Patching up the Pact: some Suggestions for Enhancing Fiscal Sustainability and Macroeconomic Stability in an Enlarged European Union," CEPR Discussion Papers 3496, C.E.P.R. Discussion Papers.
  5. Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Designing fiscal and monetary institutions for a European Monetary Union," Discussion Paper 1995-58, Tilburg University, Center for Economic Research.
  6. Detken, Carsten, 1999. "Fiscal policy effectiveness and neutrality results in a non-Ricardian world," Working Paper Series 0003, European Central Bank.
  7. Michel Aglietta & Merih Uctum, 1995. "Fiscal consolidation in Europe," Research Paper 9519, Federal Reserve Bank of New York.
  8. Artis, Michael J & Marcellino, Massimiliano, 1998. "Fiscal Solvency and Fiscal Forecasting in Europe," CEPR Discussion Papers 1836, C.E.P.R. Discussion Papers.
  9. Robert Holzmann & Yves Hervé & Roland Demmel, 1996. "The maastricht fiscal criteria: Required but ineffective?," Empirica, Springer, vol. 23(1), pages 25-58, February.
  10. Eichengreen, Barry, 2001. "What problems can dollarization solve?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 267-277, April.

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