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Smoothing Asymmetric Shocks vs. Redistribution in the Euro Area: A Simple Proposal for Dealing with Mistrust in the Euro Area

Listed author(s):
  • Heikki Oksanen
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    The euro area will not have a centralised budget and smoothing of country-specific asymmetric shocks via private financial markets will develop only slowly. Mistrust among the governments has caused rigid, even pro-cyclical fiscal policies. Smoothing mechanisms are absent due to the fear that the transfers would develop into permanent redistribution. For removing these deficiencies we propose a transfer mechanism to be managed in periods of seven years so that the cumulative balance of each country is cleared in equal instalments during the subsequent 7-year period. The transfers would smoothen asymmetric shocks and alleviate the rigidity of the fiscal rules.

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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp5817.pdf
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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 5817.

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    Date of creation: 2016
    Handle: RePEc:ces:ceswps:_5817
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