Is Fiscal Policy Coordination in Emu Desirable?

34 Pages Posted: 20 Nov 2001

See all articles by Roel M. W. J. Beetsma

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Xavier Debrun

International Monetary Fund (IMF) - Research Department

Franc Klaassen

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); Tinbergen Institute

Multiple version iconThere are 3 versions of this paper

Date Written: October 2001

Abstract

It is widely argued that Europe's unified monetary policy calls for the international coordination at the fiscal level. We survey the issues involved with such coordination of fiscal policy as a demand management tool and we use a simple model to investigate the circumstances under which coordination may be desirable. It turns out that coordination is beneficial when the correlation of the shocks hitting the various economies is low. However, given the potentially adverse reaction by the ECB (as a result of free-riding and/or a conflict on the orientation of the policy mix), fiscal coordination is likely to be counterproductive when demand or supply shocks are highly symmetric across countries and the governments are unable to acquire a strategic leadership position vis-a-vis the ECB.

Keywords: EMU, Fiscal Coordination, Shocks, Demand Management

JEL Classification: E52, E58, E61, E62, E63

Suggested Citation

Beetsma, Roel M. W. J. and Debrun, Xavier and Klaassen, Franc, Is Fiscal Policy Coordination in Emu Desirable? (October 2001). Available at SSRN: https://ssrn.com/abstract=289084 or http://dx.doi.org/10.2139/ssrn.289084

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