The Paper builds a simplified model describing the economy of a currency union with decentralized national fiscal policy, where the main features characterizing the policy-making are similar to those in EMU. National governments choose the size of deficit taking into account the two main rules of the Stability and Growth Pact on public finance. Unlike previous literature the asymmetric working of those rules is explicitly modeled in order to identify its impact on the Nash equilibrium of deficits arising from a game of strategic interaction between fiscal authorities in the union.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
4647.
Find related papers by JEL classification: E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General H60 - Public Economics - - National Budget, Deficit, and Debt - - - General H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
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