Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule
Avocates of formal fiscal restraints on the member states of the European Monetary Union often argue that US experience proves that a monetary union needs such constraints to guarantee the stability of the common currency. We show, first, that the origin of formal fiscal restraints on US state governments is unrelated to monetary questions. Second, we show that the same is true for similar constraints in Australia. Third, we show that the incidence of fiscal restraints is strongly correlated with the central government's ownership of the national tax base. The implication for Europe is that fiscal restraints are unnecessary as long as the EU retains a high degree of fiscal decentralization.
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- Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-661, September.
- Hughes Hallett, Andrew & Vines, David, 1991. "Adjustment Difficulties within a European Monetary Union: Can They be Reduced?," CEPR Discussion Papers 517, C.E.P.R. Discussion Papers.
- von Hagen, Jurgen, 1991.
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Journal of Public Economics,
Elsevier, vol. 44(2), pages 199-210, March.
- von Hagen,Juergen, "undated". "A note on the empirical effectiveness of formal fiscal restraints," Discussion Paper Serie B 155, University of Bonn, Germany.
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