The regional-stabilisation properties of fiscal arrangements

Alexander Italianer and Jean Pisani-Ferry

Chapter 11 in Improving Economic and Social Cohesion in the European Community, 1994, pp 155-194 from Palgrave Macmillan

Abstract: Abstract The steps leading to the signature of the Treaty on European Union in Maastricht have refuelled the debate about whether a single European currency would need to be accompanied by a large budget at Community level, an equalisation scheme, a special “shock-absorbing” mechanism or a combination of these devices. One of the main arguments in favour of such a parallelism in the process of unification is that without a sizeable EC budget, monetary union would lack the automatic stabilisers needed to compensate states for the loss of the exchange rate as an adjustment instrument (a view taken by, for instance, Krugman, 1992 and Feldstein, 1992). As developed in Goodhart and Smith (1992), the case for regional stabilisation rests on the Keynesian assumption of market imperfections (especially price/wage rigidities) which prevent instantaneous market clearing. This is indeed a basic assumption in all the literature dealing with stabilisation properties of federal budgetary systems. It is therefore retained hereafter without further discussion.

Keywords: Member State; Social Cohesion; Unemployment Benefit; Monetary Union; Transfer Payment (search for similar items in EconPapers)
Date: 1994
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DOI: 10.1007/978-1-349-23438-7_11

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