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Budgetary Aspects of Economic and Monetary Integration in Europe

  • van der Ploeg, Frederick

This paper analyses some of the implications of the proposals of the Delors Committee for monetary and fiscal policies in Europe. The merits of an independent ESCB are discussed. We offer four reasons why, in the absence of European coordination of budgetary policies, the size of the public sector may be too small relative to the first-best outcome: first, with an independent central bank seigniorage revenues will only accrue through real growth, so that taxes must be raised and exhaustive public spending must be cut; second, an economic union means that spending by an individual treasury benefits the other treasuries, so that there is an inadequate provision of public goods; third, international competition drives tax rates down and leaves fewer funds for the public sector; fourth, an appreciation of the real exchange rate of Europe has the nature of a public good, hence the level of exhaustive public spending tends to be too low.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 492.

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Date of creation: Jan 1991
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Handle: RePEc:cpr:ceprdp:492
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  1. Mussa, M.L., 1990. "Exchange Rates in Theory and in Reality," Princeton Studies in International Economics 179, International Economics Section, Departement of Economics Princeton University,.
  2. N. Gregory Mankiw, 1987. "The Optimal Collection of Seigniorage: Theory and Evidence," NBER Working Papers 2270, National Bureau of Economic Research, Inc.
  3. Jeffrey D. Sachs, 1981. "The Current Account and macroeconomic Adjustment in the 1970s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 201-282.
  4. Assaf Razin & Efraim Sadka, 1989. "International Tax Competition and Gains from Tax Harmonization," NBER Working Papers 3152, National Bureau of Economic Research, Inc.
  5. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  6. Nouriel Roubini, 1988. "Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing. A Solution to the "Feldstein-Horioka Puzzle"?," NBER Working Papers 2773, National Bureau of Economic Research, Inc.
  7. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  8. van der Ploeg, Frederick, 1987. "International Policy Coordination in Interdependent Monetary Economies," CEPR Discussion Papers 169, C.E.P.R. Discussion Papers.
  9. Hamada, Koichi, 1976. "A Strategic Analysis of Monetary Interdependence," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 677-700, August.
  10. Canzoneri, Matthew B & Rogers, Carol Ann, 1990. "Is the European Community an Optimal Currency Area? Optimal Taxation versus the Cost of Multiple Currencies," American Economic Review, American Economic Association, vol. 80(3), pages 419-33, June.
  11. Robert J. Barro, 1983. "Inflationary Finance under Discretion and Rules," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 1-16, February.
  12. Jacob A. Frenkel & Assaf Razin, 1989. "International Effects of Tax Reforms," NBER Working Papers 2873, National Bureau of Economic Research, Inc.
  13. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
  14. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-28, November.
  15. Willem H. Buiter, 1990. "Principles of Budgetary and Financial Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524139, June.
  16. Keen, Michael, 1989. "Pareto-improving indirect tax harmonisation," European Economic Review, Elsevier, vol. 33(1), pages 1-12, January.
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