The desirability of fiscal constraints in monetary unions depends critically on whether the monetary authority can commit to follow its policies. If it can commit, then debt constraints can only impose costs. If it cannot commit, then fiscal policy has a free-rider problem, and debt constraints may be desirable. This type of free-rider problem is new and arises only because of a time inconsistency problem.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
10232.
Length: Date of creation: Jan 2004 Date of revision: Handle: RePEc:nbr:nberwo:10232
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