Is Fiscal Policy Coordination in EMU Desirable?

Roel Beetsma, Xavier Debrun and Franc Klaassen

No 04-2001, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: It is widely argued that Europe's unified monetary policy calls for the international coordination at the fiscal level. We survey the issues involved with such coordination of fiscal policy as a demand management tool and we use a simple model to investigate the circumstances under which coordination may be desirable. It turns out that coordination is beneficial when the correlation of the shocks hitting the various economies is low. However, given the potentially adverse reaction by the ECB (as a result of free-riding and/or a conflict on the orientation of the policy mix), fiscal coordination is likely to be counterproductive when demand or supply shocks are highly symmetric across countries and the governments are unable to acquire a strategic leadership position vis-à-vis the ECB.

Keywords: EMU; fiscal coordination; shocks; demand management (search for similar items in EconPapers)
Pages: 44
Date: 2001-01-10
New Economics Papers: this item is included in nep-eec, nep-ifn and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (101)

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Related works:
Working Paper: Is Fiscal Policy Coordination in EMU Desirable? (2001)
Working Paper: Is Fiscal Policy Coordination in EMU Desirable? (2001)
Working Paper: Is Fiscal Policy Coordination in EMU Desirable? (2001)
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