Estimations and Synthetic Fiscal Transfers in the Eurozone

Johannes Kabderian Dreyer () and Peter Alfons Schmid ()
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Johannes Kabderian Dreyer: Roskilde University (RUC), ISE
Peter Alfons Schmid: FOM University of Applied Sciences

Chapter 4 in Optimal Currency Areas and the Euro, Volume III, 2026, pp 65-92 from Springer

Abstract: Abstract This chapter applies an estimated model of the US fiscal federalism to the Eurozone (EZ) to evaluate how such a system might have smoothed past macroeconomic shocks in EZ members. Using econometric simulations of synthetic fiscal transfers, it highlights trade-offs between stabilization and redistribution, as well as issues of procyclicality and transparency. The results indicate that building a stabilization system in the EZ comparable to that of the United States (US) would require substantial commitments from member countries. The chapter also analyzes the EZ’s existing temporary fiscal mechanisms and compares their magnitudes with the simulated transfers. The main conclusion is that only a credible, rules-based mechanism of fiscal transfers, combined with sufficient fiscal capacity, can deliver effective stabilization.

Keywords: Eurozone; Fiscal federalism; Risk sharing; Simulation; Quantification of fiscal transfers (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-032-12903-1_4

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DOI: 10.1007/978-3-032-12903-1_4

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