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Fiscal federalism and European monetary integration

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  • Tarkka, Juha
  • Åkerholm, Johnny

Abstract

The paper considers the role common fiscal arrangements might have to play in the operation of a European monetary union. In the first part of the study, we characterize an international fiscal incentive scheme which could reconcile different national macroeconomic preferences, thus supporting an intemational unanimity an monetary policy. The traditionaI argument for fiscal federalism arises from the fact that when countries face asymmetric cyclical fluctuations, pooling of tax revenues may be warranted from the stabilization point of view. Empirical results, presented in the second part of the paper, suggest that the amplitude of asymmetric fluctuations in the GDP is largest in the "fringe" countries of Europe, while the fluctuations in the "core" are more synchronized with pan-European developments.

Suggested Citation

  • Tarkka, Juha & Åkerholm, Johnny, 1992. "Fiscal federalism and European monetary integration," Bank of Finland Research Discussion Papers 2/1992, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp1992_002
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    References listed on IDEAS

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    1. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    2. Rogoff, Kenneth, 1987. "Reputational constraints on monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 26(1), pages 141-181, January.
    3. Barry Eichengreen, 1992. "Is Europe an Optimum Currency Area?," Palgrave Macmillan Books, in: Silvio Borner & Herbert Grubel (ed.), The European Community after 1992, chapter 8, pages 138-161, Palgrave Macmillan.
    4. Weber, Axel A, 1990. "EMU and Asymmetries and Adjustment Problems in the EMS," CEPR Discussion Papers 448, C.E.P.R. Discussion Papers.
    5. Alberto Alesina & Vittorio Grilli, 1991. "The European Central Bank: Reshaping Monetary Politics in Europe," NBER Working Papers 3860, National Bureau of Economic Research, Inc.
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