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Reflections on the Fiscal Implications of a Common Currency

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  • Buiter, Willem H.
  • Kletzer, Kenneth

Abstract

This paper studies the likely consequences of monetary unification among the EC members for the conduct of fiscal policy in the EC countries (and by an emerging Federal European Fiscal Authority). Among the conclusions are the following. If the Eurofed is to be independent, the external exchange rate policy of the EC should be assigned to the Eurofed and not to the fiscal authorities. Effective (as opposed to formal) independence of the Eurofed is going to be very difficult to achieve. Coordinated upper ceilings on national public sector financial deficits are unnecessary and probably undesirable. Coordination of national public expenditure policies, tax policies and borrowing policies is in principle desirable for both efficiency and distributional reasons. The empirical models required for a serious welfare analysis of fiscal policy coordination do not yet exi.

Suggested Citation

  • Buiter, Willem H. & Kletzer, Kenneth, 1990. "Reflections on the Fiscal Implications of a Common Currency," CEPR Discussion Papers 418, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:418
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    Cited by:

    1. Jérôme Creel, 1999. "The stability pact and feedback policy effects," Working Papers hal-01064862, HAL.
    2. Robert Holzmann & Yves Hervé & Roland Demmel, 1996. "The maastricht fiscal criteria: Required but ineffective?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(1), pages 25-58, February.
    3. Beetsma, Roel M W J & Bovenberg, A Lans, 2000. "Designing Fiscal and Monetary Institutions for a European Monetary Union," Public Choice, Springer, vol. 102(3-4), pages 247-269, March.
    4. Richard C. K. Burdekin & Clas Withborg & Thomas D. Willen, 1992. "A Monetary Constitution Case for an Independent European Central Bank," The World Economy, Wiley Blackwell, vol. 15(2), pages 231-249, March.
    5. Willem H. Buiter, 1999. "Alice in Euroland," Journal of Common Market Studies, Wiley Blackwell, vol. 37(2), pages 181-209, June.
    6. Michael Artis & Massimiliano Marcellino, "undated". "Fiscal Solvency and Fiscal Forecasting in Europe," Working Papers 142, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Andrew Brociner, 1993. "L'Union monétaire européenne : une revue de la littérature théorique," Revue de l'OFCE, Programme National Persée, vol. 43(1), pages 349-363.
    8. Willem H. Buiter & Clemens Grafe, 2004. "Patching up the Pact," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(1), pages 67-102, March.
    9. Detken, Carsten, 1999. "Fiscal policy effectiveness and neutrality results in a non-Ricardian world," Working Paper Series 0003, European Central Bank.
    10. Michel Aglietta & Merih Uctum, 1995. "Fiscal consolidation in Europe," Research Paper 9519, Federal Reserve Bank of New York.
    11. Patricia S. Pollard, 1993. "Macroeconomic policy effects in a monetary union," Working Papers 1993-001, Federal Reserve Bank of St. Louis.
    12. Croix de la, D. & Urbain, J.R.Y.J., 1996. "Intertemporal substitution in import demand and habit formation," Research Memorandum 004, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    13. Paul De Grauwe, 2010. "The Euro Experience and Lessons for the GCC Currency Union," Chapters, in: Ronald MacDonald & Abdulrazak Al Faris (ed.), Currency Union and Exchange Rate Issues, chapter 4, Edward Elgar Publishing.
    14. Eichengreen, Barry, 2001. "What problems can dollarization solve?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 267-277, April.

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