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Financial integration and public financial institutions

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  • Werlang, Sérgio Ribeiro da Costa
  • Novaes, Walter

Abstract

This article highlights the problems associated with theexistence of financiai institutions owned by a State which is a member of a federation. We show that these financiai institutions allow the States to transfer deficits to the federal government. This possibility creates incentives to higher deficits at State and federal leveis, implying an inefficiently high inflation rate. The main policy implication is that stabilization policies are more difficult to be implemented in countries such as Brazil, and Argentina which allow the members of the federation to own financiai institutions. A second policy implication is that Economic Blocks such as the European Community or Mercosur should not allow regional central banks if they create a monetary authority to help the members in financiai difficulty.

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Bibliographic Info

Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 225.

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Date of creation: Nov 1993
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Handle: RePEc:fgv:epgewp:225

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Cited by:
  1. Paulo Roberto Arvate & Marcos Felipe Mendes Lopes, 2007. "Institutional Changes, Incentive Schemes And The Decision To Undertake Fiscal Adjustments," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Gr 010, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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