Fiscal policy in monetary unions: implications for Europe
This paper analyzes how the feasible mix of government expenditure and financing arrangements may change with the establishment of a monetary union such as that planned by members of the European Community. We find that a monetary union reduces the feasible divergence across countries in their present discounted levels of fiscal spending. Wide differences across countries in their present and future time pattern of spending are still possible, however. Examination of the empirical evidence suggests that the movement towards greater exchange rate fixity associated with the EMS and participation in "quasi" monetary unions have not been accompanied by significant fiscal convergence. The experience of member states of several existing monetary unions, however, suggests that a more effective constraint to budgetary discipline arises within full-fledged unions in operation over long periods even in the absence of binding central rules on government deficit and debt positions.
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- Feenstra, Robert C., 1986. "Functional equivalence between liquidity costs and the utility of money," Journal of Monetary Economics, Elsevier, vol. 17(2), pages 271-291, March.
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- Keuzenkamp, Hugo & van der Ploeg, Frederick, 1990. "Savings, Investment, Government Finance and the Current Account: The Dutch Experience," CEPR Discussion Papers 467, C.E.P.R. Discussion Papers.
- Djajic, Slobodan, 1987. "Effects of budgetary policies in open economies: The role of intertemporal consumption substitution," Journal of International Money and Finance, Elsevier, vol. 6(3), pages 373-383, September.
- A. Lans Bovenberg & Jeroen J. M. Kremers & Paul R. Masson, 1991. "Economic and Monetary Union in Europe and Constraints on National Budgetary Policies," IMF Staff Papers, Palgrave Macmillan, vol. 38(2), pages 374-398, June.
- Anne C. Case & James R. Hines, Jr. & Harvey S. Rosen, 1989.
"Copycatting: Fiscal Policies of States and Their Neighbors,"
NBER Working Papers
3032, National Bureau of Economic Research, Inc.
- Case, A.C. & Hines, J.R.J. & Rosen, H.S., 1989. "Copycatting: Fiscal Policies Of States And Their Neighbors," Papers 37, Princeton, Woodrow Wilson School - Discussion Paper.
- repec:fth:harver:1437 is not listed on IDEAS
- Donato Masciandaro & Guido Tabellini, 1987. "Monetary regimes and fiscal deficits: a comparative analysis," Proceedings, Federal Reserve Bank of San Francisco, pages 125-152.
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