Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule

Barry Eichengreen and Juergen von Hagen

No 1247, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Avocates of formal fiscal restraints on the member states of the European Monetary Union often argue that US experience proves that a monetary union needs such constraints to guarantee the stability of the common currency. We show, first, that the origin of formal fiscal restraints on US state governments is unrelated to monetary questions. Second, we show that the same is true for similar constraints in Australia. Third, we show that the incidence of fiscal restraints is strongly correlated with the central government's ownership of the national tax base. The implication for Europe is that fiscal restraints are unnecessary as long as the EU retains a high degree of fiscal decentralization.

Keywords: Fiscal Federalism; Fiscal Restraints; Monetary Union (search for similar items in EconPapers)
JEL-codes: F33 H62 H63 H74 H77 (search for similar items in EconPapers)
Date: 1995-09
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Citations: View citations in EconPapers (36)

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Related works:
Working Paper: Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule (1995)
Working Paper: Fiscal Policy and Monetary Union: Federalism, Fiscal Restrictions and the No-Bailout Rule (1995)
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