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Fiscal policy in Europe: a helicopter view

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  • Bilbiie, Florin
  • Monacelli, Tommas
  • Perotti, Roberto

Abstract

We discuss the main fiscal policy issues in the Eurozone, focusing on two that are at the core of the current debate. The first is that, right from the start, the government deficit and debt were the key objects of contention in the debate that led to the creation of the Eurozone, and they still are. The second issue is that a currency union implies the loss of a country-specific instrument, a national monetary policy. This puts a higher burden on fiscal policy as a tool to counteract shocks, a burden that might be even heavier now that the European Central Bank has arguably reached the Zero Lower Bound. Two obvious solutions are mutual insurance (or risk sharing, we use the two expressions interchangeably) between countries; and a centralized stabilization policy. Yet both have been remarkably difficult to come by.

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  • Bilbiie, Florin & Monacelli, Tommas & Perotti, Roberto, 2020. "Fiscal policy in Europe: a helicopter view," CEPR Discussion Papers 15382, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15382
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    References listed on IDEAS

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    1. Alesina, Alberto & Perotti, Roberto, 1998. "Economic Risk and Political Risk in Fiscal Unions," Economic Journal, Royal Economic Society, vol. 108(449), pages 989-1008, July.
    2. Olivier J. Blanchard & Paolo Mauro & Julien Acalin, 2016. "The Case for Growth-Indexed Bonds in Advanced Economies Today," Policy Briefs PB16-2, Peterson Institute for International Economics.
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    Cited by:

    1. Ricardo Duque Gabriel & Mathias Klein & Ana Sofia Pessoa, 2023. "The Effects of Government Spending in the Eurozone," Journal of the European Economic Association, European Economic Association, vol. 21(4), pages 1397-1427.
    2. Olga Francová & Ermal Hitaj & John Goossen & Robert Kraemer & Andreja Lenarčič & Georgios Palaiodimos, 2021. "EU fiscal rules: reform considerations," Discussion Papers 17, European Stability Mechanism, revised 25 Oct 2021.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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