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Monetary union without fiscal coordination may discipline policymakers

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  • Beetsma, R.M.W.J.
  • Bovenberg, A.L.

    (Tilburg University, Center For Economic Research)

Abstract

We show that, with benevolent policymakers and fiscal leadership, monetary unification reduces inflation, taxes and public spending. These disciplining effects of a monetary union, which rise with the number of fiscal players in the union, are likely to raise welfare. Joining an optimally designed monetary union is particularly attractive if fiscal authorities do not care about inflation. Fiscal coordination offsets the disciplining effects of monetary unification. Hence, subsidiarity in fiscal policymaking may enhance welfare. Keywords: monetary union, fiscal leadership, common central bank, discipline, optimal institutions, inflation, taxation, spending, fiscal coordination.
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Suggested Citation

  • Beetsma, R.M.W.J. & Bovenberg, A.L., 1995. "Monetary union without fiscal coordination may discipline policymakers," Discussion Paper 1995-59, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:004d10de-12f0-4be1-9a7f-db3b7e1bf0b4
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    More about this item

    Keywords

    Taxation; Central Banks; Monetary Policy; Monetary Integration; Fiscal Policy; welfare economics;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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