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Smoothing shocks and balancing budgets in a currency union^M

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  • Beatriz de Blas

    (Universidad Autonoma de Madrid)

  • James Costain

    (Bank of Spain)

Abstract

Using a sticky-price DSGE matching model of a small open economy in a currency union, we compare the business cycle implications of several different fiscal rules that all achieve the same reduction in the standard deviation of the public debt. In our simulations, compared with rules that adjust tax rates, a rule that stabilizes the budget by adjusting public salaries and transfers reduces fluctuations in consumption, employment, and private and public after-tax real wages, thus bringing the market economy closer to the social planner's solution.

Suggested Citation

  • Beatriz de Blas & James Costain, 2012. "Smoothing shocks and balancing budgets in a currency union^M," 2012 Meeting Papers 975, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:975
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    References listed on IDEAS

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    Cited by:

    1. Pascal Jacquinot & Matija Lozej & Massimiliano Pisani, 2018. "Labor Tax Reforms, Cross-Country Coordination, and the Monetary Policy Stance in the Euro Area: A Structural Model-Based Approach," International Journal of Central Banking, International Journal of Central Banking, vol. 14(3), pages 65-140, June.
    2. Henrique S. Basso & James Costain, 2016. "Fiscal Delegation in a Monetary Union with Decentralized Public Spending," CESifo Economic Studies, CESifo Group, vol. 62(2), pages 256-288.
    3. Jinill Kim & Sunghyun Kim, 2017. "How much to share: Welfare effects of fiscal transfers," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 50(3), pages 636-659, August.
    4. 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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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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