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One scheme fits all: a central fiscal capacity for the EMU targeting eurozone, national and regional shocks

Roel Beetsma, Jacopo Cimadomo () and Josha van Spronsen

No 2666, Working Paper Series from European Central Bank

Abstract: This paper proposes a central fiscal capacity for the euro area that generates transfers in response to eurozone, country, and region-specific shocks. The main novelty of this fiscal capacity is that it allows a joint response to these three types of shocks within a single scheme. Based on NUTS3 regional data over the last two decades and regional fiscal multiplier estimates, our analysis shows that - with a limited risk of moral hazard - substantial stabilisation could have been achieved in response to the eurozone and regional shocks, while country-specific shocks were on average less severe and therefore needed less stabilisation. JEL Classification: C38, E32, E62, E63

Keywords: Bayesian inference; Central fiscal capacity; macroeconomic stabilisation; multilevel factor model (search for similar items in EconPapers)
Date: 2022-05
New Economics Papers: this item is included in nep-eec, nep-mac, nep-mon and nep-ure
Note: 352854
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Working Paper: One Scheme Fits All: A Central Fiscal Capacity for the EMU Targeting Eurozone, National and Regional Shocks (2021) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222666

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