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Fiscal Flows in the United States and Canada: Lessons for Monetary Union in Europe

  • Bayoumi, Tamim
  • Masson, Paul R

Regional flows of federal taxes and transfers within the United States and Canada are used to analyse long-term fiscal flows (the redistributive element) and short-term responses to regional business cycles (the stabilization element). In the United States, long-run flows amount to 22 cents in the dollar while the stabilization effect is 31 cents in the dollar. In Canada the redistributive effect is larger (39 cents) and the stabilization effect smaller (17 cents). Federal flows appear to depend on the institutional structure of the country concerned. In both countries, however, the redistributive element is considerably larger than the amounts involved in the EC Structural Funds programme. As for stabilization, national fiscal policies in the EC appear to have been as effective as federal governments in the United States and Canada in cushioning shocks to incomes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1057.

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Date of creation: Nov 1994
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Handle: RePEc:cpr:ceprdp:1057
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  1. Gallant, A. Ronald & Jorgenson, Dale W., 1979. "Statistical inference for a system of simultaneous, non-linear, implicit equations in the context of instrumental variable estimation," Journal of Econometrics, Elsevier, vol. 11(2-3), pages 275-302.
  2. Xavier Sala-i-Martin & Jeffrey Sachs, 1991. "Fiscal Federalism and Optimum Currency Areas: Evidence for Europe From the United States," NBER Working Papers 3855, National Bureau of Economic Research, Inc.
  3. Robin W. Boadway & Frank R. Flatters, 1982. "Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results," Canadian Journal of Economics, Canadian Economics Association, vol. 15(4), pages 613-33, November.
  4. Cohen, Daniel & Wyplosz, Charles, 1989. "The European Monetary Union: An Agnostic Evaluation," CEPR Discussion Papers 306, C.E.P.R. Discussion Papers.
  5. Paul Masson & Jacques Melitz, 1991. "Fiscal policy independence in a European Monetary Union," Open Economies Review, Springer, vol. 2(2), pages 113-136, June.
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