Fiscal Federalism: US History for Architects of Europe's Fiscal Union
European debates over reform of the fiscal governance of the euro area frequently reference fiscal federalism in the United States. The "fiscal compact" agreed by the European Council during 2011 provided for the introduction of, among other things, constitutional rules or framework laws known as "debt brakes" in the member states of the euro area. In light of the compact and proposals for deeper fiscal union, we review US fiscal federalism from Alexander Hamilton to the present. We note that within the US system the states are "sovereign": The federal government does not mandate balanced budgets nor, since the 1840s, does it bail out states in fiscal trouble. States adopted balanced budget rules of varying strength during the nineteenth century and these rules limit debt accumulation. Before introducing debt brakes for euro area member states, however, Europeans should consider three important caveats. First, debt brakes are likely to be more durable and effective when "owned" locally rather than mandated centrally. Second, maintaining a capacity for countercyclical macroeconomic stabilization is essential. Balanced budget rules have been viable in the US states because the federal government has a broad set of fiscal powers, including countercyclical fiscal action. Finally, because debt brakes threaten to collide with bank rescues, the euro area should unify bank regulation and create a common fiscal pool for restructuring the banking system.
|Date of creation:||Jan 2012|
|Contact details of provider:|| Postal: 1750 Massachusetts Avenue, NW, Washington, DC 20036-1903|
Web page: http://www.piie.com
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wallis, John Joseph, 2005. "Constitutions, Corporations, and Corruption: American States and Constitutional Change, 1842 to 1852," The Journal of Economic History, Cambridge University Press, vol. 65(01), pages 211-256, March.
- Robert P. Inman, 1996. "Do Balanced Budget Rules Work? U.S. Experience and Possible Lessons for the EMU," NBER Working Papers 5838, National Bureau of Economic Research, Inc.
- Mark Hallerberg, 2011. "Fiscal federalism reforms in the European Union and the Greek crisis," European Union Politics, SAGE Publishing, vol. 12(1), pages 127-142, March.
- James M. Poterba, 1993.
"State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics,"
NBER Working Papers
4375, National Bureau of Economic Research, Inc.
- Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August.
- Bent E. Sorensen & Oved Yosha, 2001. "Is state fiscal policy asymmetric over the business cycle?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 43-64.
- James M. Poterba, 1996. "Do Budget Rules Work?," NBER Working Papers 5550, National Bureau of Economic Research, Inc.
- Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2009.
"Automatic Stabilizers and Economic Crisis: US vs. Europe,"
IZA Discussion Papers
4310, Institute for the Study of Labor (IZA).
- Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2012. "Automatic stabilizers and economic crisis: US vs. Europe," Journal of Public Economics, Elsevier, vol. 96(3), pages 279-294.
- Mathias Dolls & Clemens Fuest & Andreas Peichl, 2010. "Automatic Stabilizers and Economic Crisis: US vs. Europe," NBER Working Papers 16275, National Bureau of Economic Research, Inc.
- Mathias Dolls & Clemens Fuest & Andreas Peichl, 2010. "Automatic Stabilizers and Economic Crisis: US vs. Europe," Cologne Graduate School Working Paper Series 01-02, Cologne Graduate School in Management, Economics and Social Sciences.
- Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2010. "Automatic stabilisers and economic crisis: US vs Europe," EUROMOD Working Papers EM2/10, EUROMOD at the Institute for Social and Economic Research.
- Mathias Dolls & Clemens Fuest & Andreas Peichl, 2009. "Automatic Stabilizers and Economic Crisis: US vs. Europe," CESifo Working Paper Series 2878, CESifo Group Munich.
- Glenn Follette & Byron F. Lutz, 2010.
"Fiscal policy in the United States: automatic stabilizers, discretionary fiscal policy actions, and the economy,"
Finance and Economics Discussion Series
2010-43, Board of Governors of the Federal Reserve System (U.S.).
- Glenn Follette & Byron Lutz, 2010. "Fiscal Policy in the United States: Automatic Stabilizers, Discretionary Fiscal Policy Actions, and the Economy," Revista de Economía y Estadística, Universidad Nacional de Córdoba, Facultad de Ciencias Económicas, Instituto de Economía y Finanzas, vol. 0(1), pages 41-73, January.
- Benedicta Marzinotto & André Sapir & Guntram B. Wolff, 2011.
"What kind of fiscal union?,"
- Mahdavi, Saeid & Westerlund, Joakim, 2011. "Fiscal stringency and fiscal sustainability: Panel evidence from the American state and local governments," Journal of Policy Modeling, Elsevier, vol. 33(6), pages 953-969.
- Poterba, James M. & Rueben, Kim S., 2001. "Fiscal News, State Budget Rules, and Tax-Exempt Bond Yields," Journal of Urban Economics, Elsevier, vol. 50(3), pages 537-562, November.
- Sorensen, B.E. & Wu, L. & Yosha, O., 1999.
"Output Fluctuations and Fiscal Policy: U.S. State and Local Governments 1978-1994,"
22-99, Tel Aviv.
- Sorensen, Bent E. & Wu, Lisa & Yosha, Oved, 2001. "Output fluctuations and fiscal policy: U.S. state and local governments 1978-1994," European Economic Review, Elsevier, vol. 45(7), pages 1271-1310.
- Bent E. Sorensen & Lisa Wu & Oved Yosha, 1999. "Output fluctuations and fiscal policy : U.S. state and local governments 1978-1994," Research Working Paper 99-05, Federal Reserve Bank of Kansas City.
- Sørensen, Bent E & Yosha, Oved, 1999. "Output Fluctuations and Fiscal Policy: US State and Local Governments 1978-1994," CEPR Discussion Papers 2286, C.E.P.R. Discussion Papers.
- Adam Posen & Nicolas Véron, 2009.
"A solution for Europe's banking problem,"
- Fatas, Antonio & Mihov, Ilian, 2006.
"The macroeconomic effects of fiscal rules in the US states,"
Journal of Public Economics,
Elsevier, vol. 90(1-2), pages 101-117, January.
- Fatás, Antonio & Mihov, Ilian, 2004. "The Macroeconomic Effects of Fiscal Rules in the US States," CEPR Discussion Papers 4372, C.E.P.R. Discussion Papers.
- Bertrand Candelon & Rabah Arezki & Amadou N Sy, 2011. "Are there Spillover Effects From Munis?," IMF Working Papers 11/290, International Monetary Fund.
- Iara, Anna & Wolff, Guntram B., 2014.
"Rules and risk in the Euro area,"
European Journal of Political Economy,
Elsevier, vol. 34(C), pages 222-236.
- Andrew Ang & Francis A. Longstaff, 2011.
"Systemic Sovereign Credit Risk: Lessons from the U.S. and Europe,"
NBER Working Papers
16982, National Bureau of Economic Research, Inc.
- Ang, Andrew & Longstaff, Francis A., 2013. "Systemic sovereign credit risk: Lessons from the U.S. and Europe," Journal of Monetary Economics, Elsevier, vol. 60(5), pages 493-510.
- Edwin Perkins, 2011. "Founding choices: American economic policy in the 1790s," Business History, Taylor & Francis Journals, vol. 53(4), pages 649-651.
- Clay, Karen, 2011. "Founding Choices: American Economic Policy in the 1790s. Edited by Douglas A. Irwin and Richard Sylla. Chicago and London: University of Chicago Press. Pp. ix, 352. $110.00, cloth; $35.00, paper," The Journal of Economic History, Cambridge University Press, vol. 71(04), pages 1124-1126, December.
- Aizenman, Joshua & Pasricha, Gurnain Kaur, 2011.
"Net Fiscal Stimulus During The Great Recession,"
Santa Cruz Department of Economics, Working Paper Series
qt8df5z6j8, Department of Economics, UC Santa Cruz.
- John Joseph Wallis & Richard E. Sylla & Arthur Grinath III, 2004. "Sovereign Debt and Repudiation: The Emerging-Market Debt Crisis in the U.S. States, 1839-1843," NBER Working Papers 10753, National Bureau of Economic Research, Inc.
- Michael D. Bordo & Lars Jonung & Agnieszka Markiewicz, 2013.
"A Fiscal Union for the Euro: Some Lessons from History ,"
CESifo Economic Studies,
CESifo, vol. 59(3), pages 449-488, September.
- Michael D. Bordo & Agnieszka Markiewicz & Lars Jonung, 2011. "A Fiscal Union for the Euro: Some Lessons from History," NBER Working Papers 17380, National Bureau of Economic Research, Inc.
- Sylla, Richard & Wilson, Jack W., 1999. "Sinking funds as credible commitments: Two centuries of US national-debt experience," Japan and the World Economy, Elsevier, vol. 11(2), pages 199-222, April.
- Mark Hallerberg & Guntram Wolff, 2008. "Fiscal institutions, fiscal policy and sovereign risk premia in EMU," Public Choice, Springer, vol. 136(3), pages 379-396, September.
- Neal, Larry, 2011. "Douglas A. Irwin and Richard Sylla (eds.), Founding Choices: American Economic Policy in the 1790s, National Bureau of Economic Research Conference Report (Chicago: University of Chicago Press, 2011, ," Financial History Review, Cambridge University Press, vol. 18(03), pages 357-360, December.
- Jonathan A. Rodden & Gunnar S. Eskeland (ed.), 2003. "Fiscal Decentralization and the Challenge of Hard Budget Constraints," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182297.
- Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
- English, William B, 1996. "Understanding the Costs of Sovereign Default: American State Debts in the 1840's," American Economic Review, American Economic Association, vol. 86(1), pages 259-275, March.
When requesting a correction, please mention this item's handle: RePEc:iie:wpaper:wp12-1. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster)
If references are entirely missing, you can add them using this form.