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Excessive Deficits and Research and Development capacity


  • Oscar Afonso

    (Universidad de Oporto (Portugal))

  • Rui Henrique Alves

    (Universidad de Oporto (Portugal))

  • Paulo B. Vasconcelos

    (Universidad de Oporto (Portugal))


Within the debate that involves the application of a tax discipline in the EMU, some authors have questioned the adequacy of the use of the same tax rules for all the different member states, appealing to a more temporary tax flexibility for the small and less developed countries. For such purposes, this paper develops a model of monetary union between two countries that differ in the degree of economic dimension; the exogenous levels of productivity directly related to the quality of the national institutions; the resources of technological knowledge and in the R+D capacity. The outcome obtained suggest that the appropriateness of including some exemptions to the European system of tax discipline, especially in terms of allocating more resources to R+D activities. Its application would affect the measures taken by the less developed countries, making them converge in a faster way.

Suggested Citation

  • Oscar Afonso & Rui Henrique Alves & Paulo B. Vasconcelos, 2008. "Excessive Deficits and Research and Development capacity," EKONOMIAZ. Revista vasca de Economía, Gobierno Vasco / Eusko Jaurlaritza / Basque Government, vol. 68(02), pages 354-367.
  • Handle: RePEc:ekz:ekonoz:2008216

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    References listed on IDEAS

    1. Muscatelli, V. Anton & Tirelli, Patrizio & Trecroci, Carmine, 2004. "Fiscal and monetary policy interactions: Empirical evidence and optimal policy using a structural New-Keynesian model," Journal of Macroeconomics, Elsevier, vol. 26(2), pages 257-280, June.
    2. Marcus Miller & Mark Salmon, 1985. "Policy Coordination and Dynamic Games," NBER Chapters,in: International Economic Policy Coordination, pages 184-227 National Bureau of Economic Research, Inc.
    3. Tabellini, Guido, 1990. "Domestic politics and the international coordination of fiscal policies," Journal of International Economics, Elsevier, vol. 28(3-4), pages 245-265, May.
    4. Uhlig, H.F.H.V.S., 2002. "One Money, But Many Fiscal Policies in Europe : What are the Consequences?," Discussion Paper 2002-32, Tilburg University, Center for Economic Research.
    5. Charles Wyplosz, 2005. "Fiscal Policy: Institutions versus Rules," National Institute Economic Review, National Institute of Economic and Social Research, vol. 191(1), pages 64-78, January.
    6. Jurg Niehans, 1968. "Monetary and Fiscal Policies in Open Economies under Fixed Exchange Rates: An Optimizing Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 893-893.
    7. Simon Wren-Lewis, 2003. "Changing the Rules," New Economy, Institute for Public Policy Research, vol. 10(2), pages 73-78, June.
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    More about this item


    Stability and Growth Pact; fiscal discipline; innovation; imitation; research and development;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights


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