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A Culture Based Theory of Fiscal Union Desirability

Author

Listed:
  • Guiso, Luigi

    (EIEF & CEPR)

  • Herrera, Helios

    (HEC Montreal)

  • Morelli, Massimo

    (Columbia University)

Abstract

If voters of different countries adhere to different and deeply rooted cultural norms, the country leaders may find it impossible to agree on efficient policies especially in hard times. The conformity constraint -political leaders unwillingness or impossibility to depart from these norms - has resulted in lack of timely intervention which has amplied an initially manageable debt crisis for some European countries to the point of threatening the Euro as a single currency. We show the conditions under which the introduction of a fiscal union can be obtained with consensus and be bene cial. Perhaps counter- intuitively, cultural diversity makes a fiscal union even more desirable. Some general lessons can also be drawn on the interaction of cultural evolution and institutional choice.

Suggested Citation

  • Guiso, Luigi & Herrera, Helios & Morelli, Massimo, 2013. "A Culture Based Theory of Fiscal Union Desirability," CAGE Online Working Paper Series 138, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:138
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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/138_2013_guiso_herrera__morelli.pdf
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    References listed on IDEAS

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    Cited by:

    1. Étienne Farvaque & Florence Huart, 2016. "Drowned by Numbers? Designing an EU-wide Unemployment Insurance," CIRANO Working Papers 2016s-33, CIRANO.

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    Keywords

    Conformity constraint; culture; debt crisis; fiscal union.;
    All these keywords.

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