Fiscal Unions

Emmanuel Farhi and Iván Werning

Working Paper from Harvard University OpenScholar

Abstract: We study cross-country insurance for members of a currency union using an open economy model with nominal price and wage rigidities. We provide two results that build the case for the creation of a fiscal union within a currency union. First, we show that, if financial markets are incomplete, the value of gaining access to any given level of insurance is greater for countries that are members of a currency union. Second, we show that, even if financial markets are complete, private insurance is inefficiently low. A role emerges for government intervention in macro insurance to both guarantee its existence and to influence its operation. The efficient insurance arrangement can be implemented by contingent transfers within a fiscal union. The benefits of such a fiscal union are larger, the bigger the asymmetric shocks affecting the members of the currency union, the more persistent these shocks, and the less open the member economies.

Date: 2014-01
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://scholar.harvard.edu/farhi////////////////// ... //////////node/70961

Related works:
Journal Article: Fiscal Unions (2017)
Working Paper: Fiscal Unions (2017)
Working Paper: Fiscal Unions (2013)
Working Paper: Fiscal Unions (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:qsh:wpaper:70961

Access Statistics for this paper

More papers in Working Paper from Harvard University OpenScholar Contact information at EDIRC.
Bibliographic data for series maintained by Richard Brandon ( this e-mail address is bad, please contact ).