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(Why) Is the Euro system intrinsically unstable?

Author

Listed:
  • Bernardo Maggi

    (Sapienza Universita' di Roma)

Abstract

In this study we focus on the dynamics of taxation, debt, and monetary stability in a currency union area. We specifically adapt our theoretical set up to the Euro zone with special emphasis on the countries affected by critical conditions of public debt. We deal with such a problem in a dynamic optimization perspective by referring to the optimal control literature and find the optimal taxation and composition by maturity of the debt as it follows from the Stability and Growth Pact (SGP). Critical results depend upon the accumulation over time of the past decisions on public expenses and the consequent high level of taxation rate according to which a probability of failure to comply the SGP is evaluated.

Suggested Citation

  • Bernardo Maggi, 2015. "(Why) Is the Euro system intrinsically unstable?," DSS Empirical Economics and Econometrics Working Papers Series 2015/1, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome.
    • Handle: RePEc:sas:wpaper:20151
    as

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    File URL: http://www.dss.uniroma1.it/RePec/sas/wpaper/20151_maggi.pdf
    File Function: First version, 2015
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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