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Estimations and Synthetic Fiscal Transfers in the Eurozone

In: Optimal Currency Areas and the Euro, Volume III

Author

Listed:
  • Johannes Kabderian Dreyer

    (Roskilde University (RUC), ISE)

  • Peter Alfons Schmid

    (FOM University of Applied Sciences)

Abstract

This chapter applies an estimated model of the US fiscal federalism to the Eurozone (EZ) to evaluate how such a system might have smoothed past macroeconomic shocks in EZ members. Using econometric simulations of synthetic fiscal transfers, it highlights trade-offs between stabilization and redistribution, as well as issues of procyclicality and transparency. The results indicate that building a stabilization system in the EZ comparable to that of the United States (US) would require substantial commitments from member countries. The chapter also analyzes the EZ’s existing temporary fiscal mechanisms and compares their magnitudes with the simulated transfers. The main conclusion is that only a credible, rules-based mechanism of fiscal transfers, combined with sufficient fiscal capacity, can deliver effective stabilization.

Suggested Citation

  • Johannes Kabderian Dreyer & Peter Alfons Schmid, 2026. "Estimations and Synthetic Fiscal Transfers in the Eurozone," Springer Books, in: Optimal Currency Areas and the Euro, Volume III, chapter 4, pages 65-92, Springer.
    • Handle: RePEc:spr:sprchp:978-3-032-12903-1_4
    DOI: 10.1007/978-3-032-12903-1_4
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