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Fiscal Deficits in Monetary Unions: A Comparison of EMU and United States

Listed author(s):
  • Philip Arestis

    ()

    (The Business School, South Bank University London)

  • Mosahid Khan

    (OECD)

  • Kul B. Luintel

    (Brunel University)

The stringent deficit criterion followed by the EMU is motivated by the belief that a sustainable fiscal arrangement is a must for a viable monetary union. In this paper we provide an empirical analysis of the issue of deficit convergence in the Euro area and compare and contrast the Euro-zone deficit with the US federal deficit. We find (i) evidence of fiscal convergence in most of the Euro-11 countries; (ii) achievement of 3% criteria by all Euro-countries immediately before the launch of the Euro; (iii) similar magnitudes and variability of deficit in Euro-11 and US and that (iv) Europe is subjected to smaller fiscal shocks than the US.

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File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume28/V28N1P89_103.pdf
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Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

Volume (Year): 28 (2002)
Issue (Month): 1 (Winter)
Pages: 89-103

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Handle: RePEc:eej:eeconj:v:28:y:2002:i:1:p:89-103
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