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

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  • Heikki Oksanen

Abstract

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.

Suggested Citation

  • Heikki Oksanen, 2016. "Smoothing Asymmetric Shocks vs. Redistribution in the Euro Area: A Simple Proposal for Dealing with Mistrust in the Euro Area," CESifo Working Paper Series 5817, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5817
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    References listed on IDEAS

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    Keywords

    euro; monetary union; smoothing shocks; fiscal transfers; government budget;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H10 - Public Economics - - Structure and Scope of Government - - - General

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