Fiscal policy coordination in monetary unions
No 74, 2013 Meeting Papers from Society for Economic Dynamics
The paper studies the design of optimal fiscal rules for members of a monetary union when there are privately observed shocks to countriesâ€™ social cost of domestic taxation. First, I show that optimal fiscal rules prescribe policy coordination in the sense of domestic taxation efforts that are positively correlated across member countries. In particular, coordination achieves higher ex-ante joint welfare than any fixed upper bound on domestic deficits. Second, I show that a history of asymmetric domestic taxation efforts leads to tighter policy coordination in the sense of an emergence of retaliatory fiscal policies. As a result, past disagreement leads to an increase in expected domestic deficits across the monetary union.
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:74
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More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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