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Numerical Fiscal Rules for Economic Unions: the Role of Sovereign Spreads

Author

Listed:
  • Juan Carlos Hatchondo
  • Mr. Leonardo Martinez
  • Mr. Francisco Roch

Abstract

We study gains from introducing a common numerical fiscal rule in a “Union” of model economies facing sovereign default risk. We show that among economies in the Union, there is significant disagreement about the common debt limit the Union should implement: the limit preferred by some economies can generate welfare losses in other economies. In contrast, a common sovereign spread limit results in higher welfare across economies in the Union.

Suggested Citation

  • Juan Carlos Hatchondo & Mr. Leonardo Martinez & Mr. Francisco Roch, 2021. "Numerical Fiscal Rules for Economic Unions: the Role of Sovereign Spreads," IMF Working Papers 2021/196, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2021/196
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