Political Economy of Fiscal Unions

Jan Fidrmuc

No 4344, CESifo Working Paper Series from CESifo

Abstract: I formulate a political-economy model of a fiscal union where the threat of secession imposes a limit on fiscal redistribution between regions. I argue that the trade-off between implementing the region’s preferred fiscal policy and benefiting from inter-regional risk sharing depends on the nature of economic shocks. Specifically both correlation of shocks across regions and their persistence over time are important. The gains from inter-regional risk sharing are potentially large when shocks are negatively correlated and temporary. In contrast, unions with negatively correlated permanent shocks are likely to prove politically unviable.

Keywords: fiscal federalism; risk sharing; disintegration; median voter; optimum currency areas (search for similar items in EconPapers)
JEL-codes: D72 F59 H77 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp4344.pdf (application/pdf)

Related works:
Journal Article: Political economy of fiscal unions (2015)
Working Paper: Political Economy of Fiscal Unions (2013)
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:ces:ceswps:_4344

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().