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Fiscal Risk Sharing and Resilience to Shocks: Lessons for the euro area from the US

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  • Alcidi, Cinzia
  • Thirion, Gilles

Abstract

On May 31st, the European Commission issued a reflection paper on the deepening of the Economic and Monetary Union calling for a far-reaching debate on reforms to the economic governance architecture of the euro area. The Commission’s document also states that a fiscal stabilisation function for the euro area could be envisaged in the longer run (2020-25) in addition to the deepening of private risk-sharing mechanisms. The present paper offers a timely contribution to the important debate on the design of a possible fiscal stabilisation function for the euro area by assessing the stabilising effects and the nature of the US federal tax-transfer system to shocks. We question the mainstream argument for a euro area ‘fiscal capacity’, which revolves around the need to “dampen the effects of asymmetric shocks”, and argue that there are important lessons to be derived from US federal fiscal risk-sharing institutions, but that they are not what policymakers typically envisage.

Suggested Citation

  • Alcidi, Cinzia & Thirion, Gilles, 2017. "Fiscal Risk Sharing and Resilience to Shocks: Lessons for the euro area from the US," CEPS Papers 12595, Centre for European Policy Studies.
    • Handle: RePEc:eps:cepswp:12595
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    References listed on IDEAS

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    Cited by:

    1. Giovannini, Alessandro & Ioannou, Demosthenes & Stracca, Livio, 2022. "Public and private risk sharing: friends or foes? The interplay between different forms of risk sharing," Occasional Paper Series 295, European Central Bank.
    2. Heikki Oksanen, 2019. "Reforming the Euro Pragmatically: Towards Sustainable Fiscal Policy and a Revamped Eurosystem," CESifo Working Paper Series 7912, CESifo.
    3. Cimadomo, Jacopo & Ciminelli, Gabriele & Furtuna, Oana & Giuliodori, Massimo, 2020. "Private and public risk sharing in the euro area," European Economic Review, Elsevier, vol. 121(C).
    4. Heikki Oksanen, 2018. "New Output Gap Estimates for Assessing Fiscal Policy with Lessons for Euro Area Reform," CESifo Working Paper Series 7287, CESifo.
    5. Massimo Bordignon & Angelo Stefano Baglioni, 2018. "The Future of Fiscal Policy in the Euro Area," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 16(02), pages 32-37, August.
    6. Luca Rossi, 2021. "Revisiting the Case for a Fiscal Union: the Federal Fiscal Channel of Downside-Risk Sharing in the United States," Temi di discussione (Economic working papers) 1351, Bank of Italy, Economic Research and International Relations Area.
    7. Valentin Marian ANTOHI & Monica Laura ZLATI, 2017. "The Impact of the Application of the Fiscal Risk Assessment Procedure in Romania," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 3, pages 78-86.
    8. repec:ces:ifodic:v:16:y:2018:i:2:p:50000000002759 is not listed on IDEAS

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