Fiscal Risk Sharing and Resilience to Shocks: Lessons for the euro area from the US
Cinzia Alcidi and
CEPS Papers from Centre for European Policy Studies
On May 31st, the European Commission issued a reflection paper on the deepening of the Economic and Monetary Union calling for a far-reaching debate on reforms to the economic governance architecture of the euro area. The Commission’s document also states that a fiscal stabilisation function for the euro area could be envisaged in the longer run (2020-25) in addition to the deepening of private risk-sharing mechanisms. The present paper offers a timely contribution to the important debate on the design of a possible fiscal stabilisation function for the euro area by assessing the stabilising effects and the nature of the US federal tax-transfer system to shocks. We question the mainstream argument for a euro area ‘fiscal capacity’, which revolves around the need to “dampen the effects of asymmetric shocks”, and argue that there are important lessons to be derived from US federal fiscal risk-sharing institutions, but that they are not what policymakers typically envisage.
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Persistent link: https://EconPapers.repec.org/RePEc:eps:cepswp:12595
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