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Is a fiscal union optimal for a monetary union?

Author

Listed:
  • Rafael Berriel

    (Stanford University)

  • Eugenia Gonzalez-Aguado

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Patrick J. Kehoe

    (Stanford University)

  • Elena Pastorino

    (Stanford University)

Abstract

When is a fiscal union appropriate for a monetary union? In a monetary union without fiscal externalities, when local fiscal authorities have an informational advantage over a central fiscal authority in terms of their knowledge of countries' preferences for government spending, a decentralized fiscal regime dominates a centralized one. Our novel result is that in the presence of fiscal externalities across countries, however, a decentralized fiscal regime is optimal for small monetary unions, whereas a centralized fiscal regime is optimal for large ones. These results shed new light on the debate on fiscal integration within the EU and its enlargement.

Suggested Citation

  • Rafael Berriel & Eugenia Gonzalez-Aguado & Patrick J. Kehoe & Elena Pastorino, 2024. "Is a fiscal union optimal for a monetary union?," Post-Print hal-04390164, HAL.
    • Handle: RePEc:hal:journl:hal-04390164
    DOI: 10.1016/j.jmoneco.2023.11.003
    Note: View the original document on HAL open archive server: https://hal.science/hal-04390164v1
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    References listed on IDEAS

    as
    1. Ben Lockwood, 2002. "Distributive Politics and the Costs of Centralization," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(2), pages 313-337.
    2. Mark Aguiar & Manuel Amador & Emmanuel Farhi & Gita Gopinath, 2015. "Coordination and Crisis in Monetary Unions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1727-1779.
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    4. Patrick J. Kehoe & Elena Pastorino, 2017. "Fiscal unions redux," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(4), pages 741-776, December.
    5. Rafael Berriel & Eugenia Gonzalez-Aguado & Patrick J. Kehoe & Elena Pastorino, 2023. "Fiscal Federalism and Monetary Unions," NBER Working Papers 31953, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Public Goods; European; Union Enlargement; Fiscal Delegation; Fiscal Federalism; Externalities;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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