Fiscal Federalism in Europe: Is it a Necessary Precondition for a Successful European Economic and Monetary Integration?

Norbert Berthold

No 1994/074, IMF Working Papers from International Monetary Fund

Abstract: An important question in the process of European integration concerns the best institutional level for stabilization policies. The theory of fiscal federalism gives criteria for evaluating if fiscal stabilization policies should take place on a centralized or on a decentralized level. This paper firstly discusses the usefulness of such policies. It reaches the conclusion that fiscal stabilization polices are in general not the adequate way of responding to shocks. However, since fiscal stabilization policies appear to be unavoidable for political reasons, the paper secondly discusses on which institutional level such policies should be located. Decentralized fiscal stabilization policies are preferable because they are disciplined more by market forces.

Keywords: WP; monetary union; country; fiscal policy instrument; goods market; market principle; core countries in the EC; does fiscal policy; fiscal policy in the EC; adjustment capacity; core countries of the EC; expansionary fiscal policies in a monetary union; rule-bound fiscal policy; market mechanism; fiscal policy in a monetary union; Monetary unions; Fiscal stimulus; Fiscal federalism; Adjustment process; Europe (search for similar items in EconPapers)
Pages: 24
Date: 1994-06-01
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