Labor Mobility and Fiscal Policy in a Currency Union

Angelo Baglioni, Andrea Boitani and Massimo Bordignon ()

FinanzArchiv: Public Finance Analysis, 2016, vol. 72, issue 4, 371-406

Abstract: Labor mobility is commonly taken as a property of an optimal currency area (OCA). But how does that property affect the outcome of fiscal policies? In our model, we show that perfect (costless) labor mobility is not necessarily welfare-improving, since it prevents the national fiscal authorities from pursuing independent policies, opening the way to a coordination problem. With symmetric shocks, the federal fiscal policy can improve welfare by playing a coordinating role. With asymmetric shocks, the federal policy allows both countries to reach a higher productive efficiency, provided the federal government is endowed with a federal budget.

Keywords: currency union; labor mobility; fiscal policy; federation (search for similar items in EconPapers)
JEL-codes: E62 H77 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Labor Mobility and Fiscal Policy in a Currency Union (2015)
Working Paper: Labor mobility and fiscal policy in a currency union (2014)
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DOI: 10.1628/001522108X14739287071698

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