From sovereign nations to federal states. Creating stable systems of public finance in America and Germany: lessons for the Eurozone

James Macdonald ()
Additional contact information
James Macdonald: Faculty of History, University of Cambridge, http://www.hist.cam.ac.uk/

No 17, Working Papers from Department of Economic and Social History at the University of Cambridge

Abstract: The Eurozone crisis has revealed the need for closer union among EMU members; the debate is about how far this union needs to go in order to create financial stability. This paper looks at the history of the United States and Germany to see how they came to establish financially stable forms of fiscal federalism. In each case the process involved the assumption by a central government of the role of "borrower of last resort" to deal with military and economic emergencies. Relying on sub-national or constituent governments turned out to be inadequate. Military emergencies led to financial collapse in the absence of a central state with adequate powers of taxation. Local governments did not have the resources to undertake countercyclical borrowing during economic downturns. Moreover, sub-national governments have required restraints on their borrowing because of the temptation of relying on central bailouts. The attempt of the Eurozone to circumvent these fiscal and political dynamics has left it without any effective borrower of last resort.

Keywords: record Federal systems; monetary union; fiscal stability; sub-national governments. (search for similar items in EconPapers)
Pages: 5,810 words plus 7 figures
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Cambridge Working Paper in Economic & Social History, No. 17

Downloads: (external link)
http://www.econsoc.hist.cam.ac.uk/docs/CWPESHnumber17March2014.pdf None. (application/pdf)
None.

Related works:
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:cmh:wpaper:17

Access Statistics for this paper

More papers in Working Papers from Department of Economic and Social History at the University of Cambridge Contact information at EDIRC.
Bibliographic data for series maintained by Guillaume Proffit () and Alexis Litvine ().