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One Scheme Fits All: A Central Fiscal Capacity for the EMU Targeting Eurozone, National and Regional Shocks

Author

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  • Beetsma, Roel
  • Cimadomo, Jacopo
  • van Spronsen, Josha

Abstract

This paper proposes a central fiscal capacity for the euro area that generates transfers in response to eurozone, country, and region-specific shocks. The main novelty of this fiscal capacity is that it allows a joint response to these three types of shocks within a single scheme. Thus policymakers can decide on the stabilisation of one shock versus the others according to political and economic considerations. Based on NUTS3 regional data over the last two decades, our analysis shows that - with a limited risk of moral hazard - substantial stabilisation could have been achieved in response to the eurozone and regional shocks, while country-specific shocks were less severe and therefore needed less stabilisation. Aggregating the transfers over the three levels, they are in the order of magnitude of the EU’s Recovery and Resilience Facility, which was adopted in response to the Covid-19 pandemic.

Suggested Citation

  • Beetsma, Roel & Cimadomo, Jacopo & van Spronsen, Josha, 2022. "One Scheme Fits All: A Central Fiscal Capacity for the EMU Targeting Eurozone, National and Regional Shocks," CEPR Discussion Papers 16829, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16829
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    Cited by:

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    2. Danilo Carullo & Paolo Di Caro & Ugo Fratesi, 2025. "The role of employment, labour productivity and trade linkages in the evolution of European regional disparities," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 74(1), pages 1-30, March.
    3. Vinci, Francesca & Schang, Christopher, 2024. "Marrying fiscal rules & investment: a central fiscal capacity for Europe," Working Paper Series 2962, European Central Bank.
    4. Dolls, Mathias, 2024. "An unemployment re-insurance scheme for the eurozone? Stabilizing and redistributive effects," European Economic Review, Elsevier, vol. 170(C).
    5. Theodore Chatziapostolou & Nikolina Kosteletou, 2023. "A VAR model for Fiscal Multipliers and the Future of Fiscal Policy in European Monetary Union," Bulletin of Applied Economics, Risk Market Journals, vol. 10(2), pages 1-15.
    6. Rodríguez-Vives Marta, 2023. "Towards a Common EU Debt: Where Do We Stand?," Intereconomics: Review of European Economic Policy, Sciendo, vol. 58(6), pages 305-310, December.

    More about this item

    Keywords

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    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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