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Fiscal Transfers and Structural Reforms in the European Monetary Union

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  • Zemanek, Holger

Abstract

In a monetary union, fiscal transfers are an important policy tool to adjust to asymmetric shocks. However, fiscal transfers cannot substitute structural reforms especially when shocks are permanent. In this way, the design of fiscal transfer systems determine whether structural reforms or non-reforming is preferred by governments. Inter-regional transfers provide the lowest incentive for structural reforms. Inter-temporal transfers might promote structural reforms as long as debt cannot be accumulated. Therefore, I oppose an EU-tax budget, call for a strict application of the Stability and Growth Pact, and explain low reform activity in the EMU by interest rate convergence.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19357.

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Date of creation: 15 Dec 2009
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Handle: RePEc:pra:mprapa:19357

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Keywords: Fiscal Transfers Systems; Structural reforms; Principal-Agent Model; European Monetary Union; EU Taxation;

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  1. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR & CES & MSH, vol. 18(37), pages 503-532, October.
  2. Thomas Fester & Helmut Seitz, 2005. "Öffentliche Infrastruktur und kommunale Finanzen," ifo Dresden berichtet, Ifo Institute for Economic Research at the University of Munich, vol. 12(02), pages 19-32, 04.
  3. Lars Ljungqvist & Thomas J. Sargent, 1996. "The European Unemployment Dilemma," EUI-RSCAS Working Papers 36, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  4. Duval, Romain & Elmeskov, Jørgen, 2006. "The effects of EMU on structural reforms in labour and product markets," Working Paper Series 0596, European Central Bank.
  5. Ansgar Belke & Bernhard Herz & Lukas Vogel, 2006. "Beyond Trade – Is Reform Effort Affected by the Exchange Rate Regime? A Panel Analysis for the World versus OECD Countries," Economie Internationale, CEPII research center, issue 107, pages 29-58.
  6. Mirrlees, J A, 1999. "The Theory of Moral Hazard and Unobservable Behaviour: Part I," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 3-21, January.
  7. Zemanek, Holger & Belke, Ansgar & Schnabl, Gunther, 2009. "Current Account Imbalances and Structural Adjustment in the Euro Area: How to Rebalance Competitiveness," IZA Policy Papers 7, Institute for the Study of Labor (IZA).
  8. Saint-Paul, Gilles, 2004. "Why are European Countries Diverging in their Unemployment Experience?," IDEI Working Papers 269, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. HINDRIKS, Jean & PERALTA, Susana & WEBER, Shlomo, 2005. "Fiscal competition, revenue sharing, and policy-induced agglomeration," CORE Discussion Papers 2005093, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Jan in 't Veld, 2007. "The potential impact of the fiscal transfers under the EU Cohesion Policy Programme," European Economy - Economic Papers 283, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  11. Salvador Barrios & Per Iversen & Magdalena Lewandowska & Ralph Setzer, 2009. "Determinants of intra-euro area government bond spreads during the financial crisis," European Economy - Economic Papers 388, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  12. Jürgen von Hagen & Charles Wyplosz, 2008. "EMU's Decentralized System of Fiscal Policy," European Economy - Economic Papers 306, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
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