IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Fiscal Federalism: US History for Architects of Europe's Fiscal Union

  • C. Randall Henning

    ()

    (Peterson Institute for International Economics)

  • Martin Kessler

    ()

    (Peterson Institute for International Economics)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://piie.com/publications/working-papers/fiscal-federalism-us-history-architects-europes-fiscal-union
Download Restriction: no

Paper provided by Peterson Institute for International Economics in its series Working Paper Series with number WP12-1.

as
in new window

Length:
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:iie:wpaper:wp12-1
Contact details of provider: Postal:
1750 Massachusetts Avenue, NW, Washington, DC 20036-1903

Phone: 202-328-9000
Fax: 202-659-3225
Web page: http://www.piie.com
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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 259-75, March.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. Adam S. Posen & Nicolas Veron, 2009. "A Solution for Europe's Banking Problem," Policy Briefs PB09-13, Peterson Institute for International Economics.
  12. Anna Iara & Guntram B. Wolff, 2011. "Rules and risk in the euro area," Working Papers 615, Bruegel.
  13. 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.
  14. Wallace E. Oates, 1999. "An Essay on Fiscal Federalism," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1120-1149, September.
  15. 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.
  16. 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.
  17. André Sapir & Benedicta Marzinotto & Guntram Wolff, 2011. "What Kind of Fiscal Union ?," ULB Institutional Repository 2013/174293, ULB -- Universite Libre de Bruxelles.
  18. James M. Poterba, 1996. "Do Budget Rules Work?," NBER Working Papers 5550, National Bureau of Economic Research, Inc.
  19. 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.
  20. 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.
  21. 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.
  22. 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.
  23. Bertrand Candelon & Rabah Arezki & Amadou N Sy, 2011. "Are there Spillover Effects From Munis?," IMF Working Papers 11/290, International Monetary Fund.
  24. Joshua Aizenman & Gurnain Kaur Pasricha, 2011. "Net Fiscal Stimulus During the Great Recession," NBER Working Papers 16779, National Bureau of Economic Research, Inc.
  25. 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, December.
  26. 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.
  27. 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.
  28. Edwin Perkins, 2011. "Founding choices: American economic policy in the 1790s," Business History, Taylor & Francis Journals, vol. 53(4), pages 649-651.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.