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The Unbearable Tightness of Being in a Monetary Union: Fiscal Restrictions and Regional Stability" Author info | Abstract | Publisher info | Download info | Related research | Statistics Evi Pappa
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We study how constrained fiscal policy can affect regional inflation and output in a two-region model of a monetary union with sticky prices and distortionary taxation. Both government expenditure and taxes can be used to stabilize regional variables; however, the best welfare outcome is obtained under constant taxes and constant regional inflations. With cooperation debt and deficit constraints reduce regional inflation variability, but the path of output is suboptimal. Under non-cooperation the opposite occurs due to a trade-off between taxation and inflation variability. Decentralized rules, rather than constraints, stabilize regional inflation and output. They imply more fiscal action for smaller union members.
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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number
294.
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Date of creation: 2005Date of revision:
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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.)
Beetsma, Roel & Ribeiro, Marcos Poplawski & Schabert, Andreas, 2008.
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Stéphane Auray & Beatriz de Blas & Aurélien Eyquem, 2009.
"Ramsey Policies in a Small Open Economy with Sticky Prices and Capital ,"
Cahiers de recherche
09-12, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
[Downloadable!]
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