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Fiscal Federalism in Crisis: Lessons for Europe from the US

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  • Zsolt Darvas

Abstract

The euro area is facing crisis, while the US is not, though the overall fiscal situation and outlook is better in the euro area than in the US, and though the US faces serious state-level fiscal crises. A higher level of fiscal federalism would strengthen the euro area, but is not inevitable. Current fiscal reform proposals (strengthening of current rules, more policy coordination and an emergency financing mechanism) will if implemented result in some improvements. But implementation might be deficient or lack credibility, and could lead to disputes and carry a significant political risk. Introduction of a Eurobond covering up to 60 percent of member states’ GDP would bring about much greater levels of fiscal discipline than any other proposal, would create an attractive Eurobond market, and would deliver a strong message about the irreversible nature of European integration.

Suggested Citation

  • Zsolt Darvas, 2010. "Fiscal Federalism in Crisis: Lessons for Europe from the US," Working Papers 1002, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest, revised 10 Sep 2010.
    • Handle: RePEc:mkg:wpaper:1002
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    References listed on IDEAS

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    1. Jacques Delpla & Jakob von Weizsäcker, 2010. "The Blue Bond Proposal," Bruegel Policy Brief 403, Bruegel.
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    Cited by:

    1. Bartha Attila, 2013. "Governance, Culture And Democracy: Institutions And Economic Development Of Eu Member States," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 205-214, July.
    2. Heinz Handler, 2013. "The Eurozone: Piecemeal Approach to an Optimum Currency Area," WIFO Working Papers 446, WIFO.
    3. Jinill Kim & Sunghyun Kim, 2017. "How much to share: Welfare effects of fiscal transfers," Canadian Journal of Economics, Canadian Economics Association, vol. 50(3), pages 636-659, August.
    4. Lannoo, Karel, 2011. "EU Federalism in Crisis," CEPS Papers 6498, Centre for European Policy Studies.
    5. Armin Steinbach, 2015. "The Mutualization of Sovereign Debt: Comparing the American Past and the European Present," Journal of Common Market Studies, Wiley Blackwell, vol. 53(5), pages 1110-1125, September.
    6. Armin Steinbach, 2015. "The Mutualisation of Sovereign Debt: Comparing the American Past and the European Present," Discussion Paper Series of the Max Planck Institute for Behavioral Economics 2015_02, Max Planck Institute for Behavioral Economics.
    7. Nils aus dem Moore, 2010. "Eine Wirtschaftsregierung für Europa? – Die EU braucht bessere governance, aber kein gouvernement économique," RWI Positionen, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 24, December.
    8. aus dem Moore, Nils, 2010. "Eine Wirtschaftsregierung für Europa? Die EU braucht bessere governance, aber kein gouvernement économique," RWI Positionen 41, RWI - Leibniz-Institut für Wirtschaftsforschung.
    9. Zsolt Darvas, 2012. "The euro crisis- ten roots, but fewer solutions," Bruegel Policy Contributions 755, Bruegel.
    10. Fruzsina Siger, 2011. "Why do we compare the EU with the USA all the time?," IWE Working Papers 196, Institute for World Economics - Centre for Economic and Regional Studies.
    11. Hyungon Kim & Chang Kwon, 2015. "The Effects of Fiscal Consolidation and Welfare Composition of Spending on Electoral Outcomes: Evidence from US Gubernatorial Elections between 1978 and 2006," New Political Economy, Taylor & Francis Journals, vol. 20(2), pages 228-253, April.
    12. Costain, James & de Blas, Beatriz, 2012. "The role of fiscal delegation in a monetary union: a survey of the political economy issues," Working Papers in Economic Theory 2012/11, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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