A Common Monetary Standard or a Common Currency for Europe? Fiscal Lessons from the United States

Ronald McKinnon

Scottish Journal of Political Economy, 1994, vol. 41, issue 4, 337-57

Abstract: In a federal system, a common currency controlled by the central government (or some other outside agent) enhances the economic benefits from merchantile competition among lower governments because it hardens their budget constraints. Among American states, tax and regulatory competition generally improves resource allocation, i.e., it is 'market-preserving.' Because a common currency in Europe is not feasible, unrestricted horizontal mercantile competition among European nation states is less benign and may worsen resource allocation. Copyright 1994 by Scottish Economic Society.

Date: 1994
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