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Fiscal Policy in a Monetary Union Under Alternative Labour-Market Structures

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  • Moïse Sidiropoulos
  • Eleftherios Spyromitros

Abstract

This paper examines the welfare and stabilisation implications of alterna- tive fiscal decision rules in a monetary union with a common monetary policy, such as the European Monetary Union (EMU). We develop a two-country model under monetary union in presnece of asymmetries. Fiscal policies are assumed alternatively non-cooperative (decentralised) and cooperative (centralised) and labour markets are characterised by decentralised and centralised wage setting. The central issue of the paper is the design of the appropriate fiscal policy rule by comparing and evaluating the performance of alternative arrangements to distribute the power over fiscal authorities between the centre of the union and the individual members of the union. The main result of this paper reveals that a decentralized fiscal policy rule, where the member states conduct independent fiscal policies, with centralised wage setting in labour markets of monetary union members is the appropriate institutional design. This institutional arrangement would improve the social welfare and stabilize better than others the idiosyncratic shocks hitting the economies of the monetary union members.

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Bibliographic Info

Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2006-25.

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Date of creation: 2006
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Handle: RePEc:ulp:sbbeta:2006-25

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Keywords: Policy-mix; EMU; labor market institutions.;

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Cited by:
  1. Sofia Pessoa e Costa & Stéphane Robin, 2007. "The Impact Of Training Programmes On Wages In France: An Evaluation Of The “Qualifying Contract” Using Propensity Scores," Working Papers of BETA, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg 2007-18, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  2. Estelle Dhont-Peltrault & Etienne Pfister, 2007. "R&D cooperation versus R&D subcontracting: empirical evidence from French survey data," Working Papers of BETA, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg 2007-17, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  3. Meixing DAI & Moïse SIDIROPOULOS & Eleftherios SPYROMITROS, 2007. "La transparence de la politique monétaire et la dynamique des marchés financiers," Working Papers of BETA, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg 2007-19, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  4. Li Qin & Eleftherios Spyromitros & Moïse Sidiropoulos, 2007. "Monetary Policy with Uncertain Central Bank Preferences for Robustness," Working Papers of BETA, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg 2007-23, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  5. Meixing DAI, 2007. "A two-pillar strategy to keep inflation expectations at bay: A basic theoretical framework," Working Papers of BETA, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg 2007-20, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  6. Gisèle Umbhauer, 2007. "De l’amiante au chrysotile, un glissement stratégique dans la désinformation," Working Papers of BETA, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg 2007-15, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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