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Fiscal Policy in a Monetary Union: Gains from Changing Institutions

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Author Info
Susana Salvado () (FEUNL, GEE)

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Abstract

In a Monetary Union where individual monetary instruments are lost, fiscal policy becomes more important as a national policy. The question addressed in this article is whether fiscal policy should be decided at the country level or by a central decision maker, being in any case the fiscal instruments specific to each country. To answer this question, the focus is on the quantitative effect, since there are costs of implementing a supranational decision maker. While discussing the methodologies used in literature, we hereby propose a different one for quantifying gains from cooperation. We conclude that gains from fiscal coordination are significative, but gains that result from policy changes as a reaction to shocks are, by nature, very small. We also show that, symmetric shocks lead to coordination gains of the same magnitude than asymmetric ones.

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File URL: http://www.gee.min-economia.pt/RePEc/WorkingPapers/SS12.pdf
File Format: application/pdf
File Function: First version, 2009
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Publisher Info
Paper provided by Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação in its series GEE Papers with number 0012.

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Length: 37 pages
Date of creation: Mar 2009
Date of revision: Mar 2009
Handle: RePEc:mde:wpaper:0012

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Related research
Keywords: Coordination; Fiscal Policy; Gains; Nash.;

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
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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This page was last updated on 2009-11-14.

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