A volatility-based theory of fiscal union desirability

Jaime Luque, Massimo Morelli () and Jose Tavares ()

Journal of Public Economics, 2014, vol. 112, issue C, 1-11

Abstract: Heterogeneous countries may rationally choose to form a currency union first, and a fiscal union later. We find, and illustrate empirically for the EMU countries, reasonable volatility conditions under which this sequencing in the deepening process is indeed rationalizable. Changes in the distribution of expected income shocks require a reassignment of political weights to restore unanimous support for an added fiscal dimension. The bargaining space depends on countries' relative income, size, and cross correlation of shocks.

Keywords: Fiscal union; Common currency; Bargaining space; Voting weights; Heterogeneous countries (search for similar items in EconPapers)
JEL-codes: D70 D78 E62 F15 H77 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:112:y:2014:i:c:p:1-11

DOI: 10.1016/j.jpubeco.2014.01.010

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