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Fiscal Union Consensus Design Under The Threat Of Autarky

  • José Tavares

    (NOVA School of Business and Economics)

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    Inspired by the current debate over the future of the monetary union in Europe, this paper provides a simple model for the determination of the conditions of survival of the common good, which requires the creation of an effective fiscal union. We highlight the importance of institutional design and varying decision weights for the enlargement of the space for consensus. Our model deepens the discussion of economic risk and political risk in fiscal federalism, and highlights the related roles of country heterogeneity and institutional design in enlarging the scope for cross country fiscal agreements.

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    Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 202.

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    Date of creation: 2012
    Date of revision:
    Handle: RePEc:red:sed012:202
    Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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    1. Salvador Barberà & Matthew O. Jackson, 2003. "On the Weights of Nations: Assigning Voting Weights in a Heterogeneous Union," Working Papers 220, Barcelona Graduate School of Economics.
    2. Casella, Alessandra, 1996. "The Role of Market Size in the Formation of Jurisdictions," CEPR Discussion Papers 1429, C.E.P.R. Discussion Papers.
    3. Eerola, Essi & Määttänen, Niku & Poutvaara, Panu, 2004. "Citizens should vote on secession," Munich Reprints in Economics 20524, University of Munich, Department of Economics.
    4. Marco Celentani & J. Ignacio Conde & Klaus Desmet, 2002. "Endogenous policy leads to inefficient risk sharing," Economics Working Papers 593, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2003.
    5. Casella, Alessandra, 1992. "Participation in a Currency Union," American Economic Review, American Economic Association, vol. 82(4), pages 847-63, September.
    6. Shiller, Robert J., 1995. "Aggregate income risks and hedging mechanisms," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(2), pages 119-152.
    7. Gordon, Roger H, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, MIT Press, vol. 98(4), pages 567-86, November.
    8. Bolton, Patrick & Roland, Gérard, 1995. "The Break up of Nations: A Political Economy Analysis," CEPR Discussion Papers 1225, C.E.P.R. Discussion Papers.
    9. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 979-1009, October.
    10. Michele Ruta, 2005. "Economic Theories of Political (Dis)integration," Journal of Economic Surveys, Wiley Blackwell, vol. 19(1), pages 1-21, 02.
    11. Alberto Alesina & Roberto Perotti, 1995. "Economic Risk and Political Risk in Fiscal Unions," NBER Working Papers 4992, National Bureau of Economic Research, Inc.
    12. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, vol. 64(3), pages 623-46, May.
    13. Casella, Alessandra, 1992. "On Markets and Clubs: Economic and Political Integration of Regions with Unequal Productivity," American Economic Review, American Economic Association, vol. 82(2), pages 115-21, May.
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