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(Why) Is the Euro system intrinsically unstable?

Bernardo Maggi ()
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Bernardo Maggi: Sapienza Universita' di Roma

No 2015/1, DSS Empirical Economics and Econometrics Working Papers Series from Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome

Abstract: In this study we focus on the dynamics of taxation, debt, and monetary stability in a currency union area. We specifically adapt our theoretical set up to the Euro zone with special emphasis on the countries affected by critical conditions of public debt. We deal with such a problem in a dynamic optimization perspective by referring to the optimal control literature and find the optimal taxation and composition by maturity of the debt as it follows from the Stability and Growth Pact (SGP). Critical results depend upon the accumulation over time of the past decisions on public expenses and the consequent high level of taxation rate according to which a probability of failure to comply the SGP is evaluated.

Keywords: Euro; Stability and Growth Pact; public debt. (search for similar items in EconPapers)
JEL-codes: H63 H21 F40 C61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-mon and nep-pbe
Date: 2015-10
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http://www.dss.uniroma1.it/RePec/sas/wpaper/20151_maggi.pdf First version, 2015 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:sas:wpaper:20151

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