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Further Analytical Perspectives and Extensions

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 extends our analysis beyond econometric simulations. It examines the design and preconditions for fiscal transfers in the Eurozone (EZ) and argues that combining short-term stabilization and long-term redistribution in a single mechanism can reduce political support for fiscal federalism: citizens tend to support transfer arrangements framed as mutual insurance against temporary shocks but are averse to systems perceived as permanent subsidies. Using historical comparisons, the chapter discusses second-best designs that are compatible with EU constraints, such as rule-based triggers, unemployment reinsurance, and a modest (but realistic) common budget. Moreover, it reflects on efficiency and fiscal multipliers. To protect the legitimacy and sustainability of the fiscal system, stabilization and redistribution should be pursued through separate instruments framed according to each objective.

Suggested Citation

  • Johannes Kabderian Dreyer & Peter Alfons Schmid, 2026. "Further Analytical Perspectives and Extensions," Springer Books, in: Optimal Currency Areas and the Euro, Volume III, chapter 0, pages 93-104, Springer.
    • Handle: RePEc:spr:sprchp:978-3-032-12903-1_5
    DOI: 10.1007/978-3-032-12903-1_5
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