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A volatility-based theory of fiscal union desirability

Author

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  • Luque, Jaime
  • Morelli, Massimo
  • Tavares, José

Abstract

Heterogeneous countries may rationally choose to form a currency union first, and a fiscal union later. We find, and illustrate empirically for the EMU countries, reasonable volatility conditions under which this sequencing in the deepening process is indeed rationalizable. Changes in the distribution of expected income shocks require a reassignment of political weights to restore unanimous support for an added fiscal dimension. The bargaining space depends on countries' relative income, size, and cross correlation of shocks.

Suggested Citation

  • Luque, Jaime & Morelli, Massimo & Tavares, José, 2014. "A volatility-based theory of fiscal union desirability," Journal of Public Economics, Elsevier, vol. 112(C), pages 1-11.
  • Handle: RePEc:eee:pubeco:v:112:y:2014:i:c:p:1-11
    DOI: 10.1016/j.jpubeco.2014.01.010
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    Cited by:

    1. Mathias Dolls & Clemens Fuest & Dirk Neumann & Andreas Peichl, 2018. "An unemployment insurance scheme for the euro area? A comparison of different alternatives using microdata," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 273-309, February.
    2. Luigi Guiso & Helios Herrera & Massimo Morelli & Tommaso Sonno, 2018. "Global Crises and Populism: the Role of Eurozone Institutions," EIEF Working Papers Series 1806, Einaudi Institute for Economics and Finance (EIEF), revised May 2018.
    3. Guiso, Luigi & Herrera, Helios & Morelli, Massimo, 2016. "Cultural Differences and Institutional Integration," Journal of International Economics, Elsevier, vol. 99(S1), pages 97-113.
    4. George Economides & Apostolis Philippopoulos & Petros Varthalitis, 2016. "Monetary Union, Even Higher Integration, or Back to National Currencies?," CESifo Economic Studies, CESifo, vol. 62(2), pages 232-255.
    5. Étienne Farvaque & Florence Huart, 2016. "Drowned by Numbers? Designing an EU-wide Unemployment Insurance," CIRANO Working Papers 2016s-33, CIRANO.
    6. Mathias Dolls & Nils Wehrhofer, 2018. "Attitudes towards Euro Area Reforms: Evidence from a Randomized Survey Experiment," EconPol Working Paper 11, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

    More about this item

    Keywords

    Fiscal union; Common currency; Bargaining space; Voting weights; Heterogeneous countries;

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F15 - International Economics - - Trade - - - Economic Integration
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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