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Fiscal Policy in a Monetary Union: Gains from Changing Institutions

  • Susana Salvado


    (FEUNL, GEE)

In a Monetary Union where individual monetary instruments are lost, fiscal policy becomes more important as a national policy. The question addressed in this article is whether fiscal policy should be decided at the country level or by a central decision maker, being in any case the fiscal instruments specific to each country. To answer this question, the focus is on the quantitative effect, since there are costs of implementing a supranational decision maker. While discussing the methodologies used in literature, we hereby propose a different one for quantifying gains from cooperation. We conclude that gains from fiscal coordination are significative, but gains that result from policy changes as a reaction to shocks are, by nature, very small. We also show that, symmetric shocks lead to coordination gains of the same magnitude than asymmetric ones.

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File Function: First version, 2009
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Paper provided by Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação in its series GEE Papers with number 0012.

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Length: 37 pages
Date of creation: Mar 2009
Date of revision: Mar 2009
Handle: RePEc:mde:wpaper:0012
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