Improving Income Stabilisation in EMU: An Analytical Exploration

Nicolas Carnot, Phil Evans, Serena Fatica and Gilles Mourre

No 14-022, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: This paper explores whether collective insurance schemes of various kinds could improve the degree of cyclical income stabilisation and the operation of fiscal stabilisers in the European Economic and Monetary Union (EMU). We review the potential issues, the underlying trade-offs and the necessary conditions for such schemes to be workable. The paper discusses "good" design features, which raise the potential efficiency and acceptability of these mechanisms. It argues that such schemes would preferably focus on large shocks, moderate the boom times as well as cushion adverse shocks, and include a degree of budgetary prudence to cater for real-time uncertainty in assessing business cycles. It carries out retrospective simulations using both "ex post" and "real-time" data. The results suggest that all the schemes considered would have provided non-negligible income stabilisation over the past 10-20 years, although somewhat less so when operating on the basis of data available in real time. The stabilisation schemes reviewed do not require particularly large or persistent payments into or out of them.

Keywords: Risk-sharing; income smoothing; fiscal stabilisers; transfer scheme; output gap (search for similar items in EconPapers)
JEL-codes: E61 E62 F36 F42 H77 (search for similar items in EconPapers)
Pages: 77 p.
Date: 2014-09-03
New Economics Papers: this item is included in nep-eec, nep-ger, nep-mac and nep-opm
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