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Positive Effects of a Decentralized Fiscal Expansion in the European Monetary Union

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  • Rosaria Rita Canale

Abstract

This paper aims to show how state intervention within the European Monetary Union can have positive effects not only on growth but also on public balances and debt. The relation between centralized monetary policy and decentralized fiscal policy partly solves the lack of coordination between the two. Each time a fiscal expansion in an EU country is not accompanied by a Central Bank interest rate increase, the expansionary effect of public spending, initially financed through the emission of public bonds, will be reinforced by endogenous money creation due to the increase in growth. The final result, if growth exceeds the rate of interest, is not only an increase in equilibrium income, but also a reduction in debt.

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  • Rosaria Rita Canale, 2008. "Positive Effects of a Decentralized Fiscal Expansion in the European Monetary Union," Journal of Economic Issues, Taylor & Francis Journals, vol. 42(3), pages 787-802, September.
    • Handle: RePEc:mes:jeciss:v:42:y:2008:i:3:p:787-802
    DOI: 10.1080/00213624.2008.11507179
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    Cited by:

    1. Canale, Rosaria Rita & Napolitano, Oreste, 2009. "The recessive attitude of EMU policies: reflections on the italian experience, 1998–2008," MPRA Paper 20207, University Library of Munich, Germany.

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