Is a fiscal union optimal for a monetary union?

Rafael Berriel, Eugenia Gonzalez-Aguado, Patrick Kehoe and Elena Pastorino

Journal of Monetary Economics, 2024, vol. 141, issue C, 157-177

Abstract: When is a fiscal union appropriate for a monetary union? In a monetary union without fiscal externalities, when local fiscal authorities have an informational advantage over a central fiscal authority in terms of their knowledge of countries’ preferences for government spending, a decentralized fiscal regime dominates a centralized one. Our novel result is that in the presence of fiscal externalities across countries, however, a decentralized fiscal regime is optimal for small monetary unions, whereas a centralized fiscal regime is optimal for large ones. These results shed new light on the debate on fiscal integration within the EU and its enlargement.

Keywords: Fiscal delegation; Fiscal federalism; Externalities; Public goods; European Union enlargement (search for similar items in EconPapers)
JEL-codes: E61 E62 E65 E69 F42 F45 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:141:y:2024:i:c:p:157-177

DOI: 10.1016/j.jmoneco.2023.11.003

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