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

Paul Cashin () and Antonio Lemus

No 2012/017, 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: WP; Fiscal insurance mechanism; income shocks; income tax revenue; transfers; Eastern Caribbean Currency Union; ECCU member; insurance mechanism; ECCU growth; ECCU country; ECCU-member country; Personal income; Income tax systems; Disposable income; Caribbean (search for similar items in EconPapers)
Pages: 23
Date: 2012-01-01
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Citations: View citations in EconPapers (5)

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