Is a fiscal union optimal for a monetary union?

Rafael Berriel, Eugenia Gonzalez-Aguado (), Patrick Kehoe and Elena Pastorino
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Eugenia Gonzalez-Aguado: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Elena Pastorino: Stanford University

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Abstract: When is a fiscal union appropriate for a monetary union? In a monetary union without fiscal externalities, when local fiscal authorities have an informational advantage over a central fiscal authority in terms of their knowledge of countries' preferences for government spending, a decentralized fiscal regime dominates a centralized one. Our novel result is that in the presence of fiscal externalities across countries, however, a decentralized fiscal regime is optimal for small monetary unions, whereas a centralized fiscal regime is optimal for large ones. These results shed new light on the debate on fiscal integration within the EU and its enlargement.

Keywords: Public Goods; European; Union Enlargement; Fiscal Delegation; Fiscal Federalism; Externalities (search for similar items in EconPapers)
Date: 2024
Note: View the original document on HAL open archive server: https://hal.science/hal-04390164v1
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Published in Journal of Monetary Economics, 2024, 141, pp.157-177. ⟨10.1016/j.jmoneco.2023.11.003⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04390164

DOI: 10.1016/j.jmoneco.2023.11.003

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