Fiscal Policy in a Monetary Union: Gains from Changing Institutions

Susana Salvado ()
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Susana Salvado: FEUNL, GEE

No 12, GEE Papers from Gabinete de Estratégia e Estudos, Ministério da Economia

Abstract: In a Monetary Union where individual monetary instruments are lost, fiscal policy becomes more important as a national policy. The question addressed in this article is whether fiscal policy should be decided at the country level or by a central decision maker, being in any case the fiscal instruments specific to each country. To answer this question, the focus is on the quantitative effect, since there are costs of implementing a supranational decision maker. While discussing the methodologies used in literature, we hereby propose a different one for quantifying gains from cooperation. We conclude that gains from fiscal coordination are significative, but gains that result from policy changes as a reaction to shocks are, by nature, very small. We also show that, symmetric shocks lead to coordination gains of the same magnitude than asymmetric ones.

Keywords: Coordination; Fiscal Policy; Gains; Nash. (search for similar items in EconPapers)
JEL-codes: E61 E62 F41 F42 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2009-03, Revised 2009-03
New Economics Papers: this item is included in nep-cba and nep-mac
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https://www.gee.gov.pt/RePEc/WorkingPapers/GEE_PAPERS_12.pdf First version, 2009 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:mde:wpaper:0012

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