Horizontal Transfers and Consumption Smoothing in a Monetary Union

Roeger Werner () and Lukas Vogel
Additional contact information
Roeger Werner: DG Economic and Financial Affairs, European Commission, CHAR 14/233, B-1049Brussels, Belgium

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2017, vol. 237, issue 3, 275-294

Abstract: The paper investigates the impact of automatic horizontal fiscal transfers on risk sharing and consumption smoothing in a 2-country DSGE model of monetary union. In particular, it uses the Asdrubali et al. (1996) approach to quantify and decompose the strength of consumption smoothing. The system of horizontal transfers between member countries has no borrowing capacity and, hence, needs to be balanced in every period in time. The transfers increase the fiscal space of national governments in (relatively) adverse situations, i. e. when the budget balance deteriorates (falling tax revenue, higher expenditure) and debt issuance is costly or constrained. The simulation results illustrate the smoothing capacity of horizontal transfers, but also suggest a significant degree of crowding-out of alternative risk sharing channels. Consequently, net stabilisation gains in the “normal times” scenario are small. Net gains increase when financial constraints in the recipient country tighten at the national level.

Keywords: Horizontal transfers; monetary union; risk sharing; consumption smoothing (search for similar items in EconPapers)
JEL-codes: E62 F41 F42 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1515/jbnst-2017-1107 (text/html)

Related works:
Journal Article: Horizontal Transfers and Consumption Smoothing in a Monetary Union (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:237:y:2017:i:3:p:275-294:n:4

DOI: 10.1515/jbnst-2017-1107

Access Statistics for this article

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik) is currently edited by Peter Winker

More articles in Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik) from De Gruyter
Bibliographic data for series maintained by Peter Golla ().