Just round the corner? Pros, cons, and implementation issues of a fiscal union for the euro area

Fabrizio Balassone, Sandro Momigliano, Marzia Romanelli and Pietro Tommasino

No 245, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The experience of other successful monetary unions and economic theory suggest that the euro area would benefit from the establishment of a supranational fiscal capacity. Institutional reforms prompted by the crisis (e.g., the European Stability Mechanism and the banking union) are introducing though to a limited extent elements of cross-country risk sharing. Nevertheless, further steps are probably needed. Proposals to create a sort of rainy-day fund present major practical difficulties associated, inter alia, to the uncertainty characterizing the identification of shocks in real time. A more appropriate solution, consistent with how risk sharing operates in existing federations, may be centralizing specific public functions (for instance, by introducing a common unemployment benefit scheme). We argue that consideration could also be given to the creation of a euro-wide, notional defined-contribution pension scheme.

Keywords: fiscal union; intergovernmental transfers; risk sharing (search for similar items in EconPapers)
JEL-codes: E42 E62 F15 F42 H77 (search for similar items in EconPapers)
Date: 2014-11
New Economics Papers: this item is included in nep-eec and nep-mac
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Citations: View citations in EconPapers (12)

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Journal Article: Just Round the Corner? Pros, Cons, and Implementation Issues of a Fiscal Union for the Euro Area (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_245_14

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