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Some Fiscal Budgetary Consequences of EMU

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  • Kirrane, Chris

Abstract

Economic and monetary unification of Europe has major implications for fiscal policy. As monetary union is characterised by the existence of a uniform real interest rate, the consequences of fiscal policies will no longer be based on exchange rate adjustments, but on changes in absolute price levels; all member countries will bear the effects on real interest rates. As long as there are price rigidities, it will be necessary to compensate for the loss of the exchange rate instrument, it will be necessary to coordinate budgetary policies in order to avoid instability and non-existent actions. But contrary to the recommendations of the Delors report, this does not generally imply the need to strengthen ‘budgetary discipline’ by setting ceilings on Member States' fiscal deficits. These aspects, together with the risks of tax competition between countries and the generalisation of externalities that should go hand in hand with the increasing integration of markets, argue in favour of a substantial increase in the Community budget.

Suggested Citation

  • Kirrane, Chris, 1990. "Some Fiscal Budgetary Consequences of EMU," MPRA Paper 93418, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:93418
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    File URL: https://mpra.ub.uni-muenchen.de/93418/1/MPRA_paper_93418.pdf
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    References listed on IDEAS

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    1. B. Douglas Bernheim, 1987. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 263-316, National Bureau of Economic Research, Inc.
    2. Eichengreen, Barry, 1990. "One Money for Europe? Lessons from the US Currency Union," Department of Economics, Working Paper Series qt6ks1k831, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. Kirrane, Chris, 1990. "Why European monetary union?," MPRA Paper 93417, University Library of Munich, Germany.
    4. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
    5. Anne C. Case & James R. Hines, Jr. & Harvey S. Rosen, 1989. "Copycatting: Fiscal Policies of States and Their Neighbors," NBER Working Papers 3032, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Kirrane, Chris, 1991. "Competition Policy in the Single European Market," MPRA Paper 93419, University Library of Munich, Germany.

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    More about this item

    Keywords

    EMU; monetary union;

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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