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The Eastern Caribbean Currency Union; Would a Fiscal Insurance Mechanism Mitigate National Income Shocks?

Paul Cashin () and Antonio Lemus ()

No 12/17, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the nature of the shocks affecting the Eastern Caribbean Currency Union (ECCU), and examines whether a hypothetical Eastern Caribbean fiscal insurance mechanism could insure member countries of the union against asymmetric national income shocks. The empirical results suggest that a one dollar reduction in an ECCU member country's per capita personal income could trigger, through reduced income taxes and increased transfers, flows equivalent to about 7 percent of the initial income shock. Each member of the currency union could benefit as well, although the extent of shock mitigation differs across individual countries.

Keywords: Caribbean; Eastern Caribbean Currency Union; External shocks; National income; Monetary unions; Income shocks; Income tax revenue; Fiscal policy; Fiscal insurance mechanism, transfers, tax revenue, asymmetric shocks, monetary union, aggregate demand, Economic Growth of Open Economies, Taxation, Subsidies, and Revenue: General, Fiscal and Monetary Policy in Development, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias and nep-mon
Date: 2012-01-01
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