A volatility-based theory of fiscal union desirability

Jaime Luque, Massimo Morelli, José Tavares

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)

Abstract

Heterogeneous countries may rationally choose to form a currency union first, and a fiscal union later. We find, and illustrate empirically for the EMU countries, reasonable volatility conditions under which this sequencing in the deepening process is indeed rationalizable. Changes in the distribution of expected income shocks require a reassignment of political weights to restore unanimous support for an added fiscal dimension. The bargaining space depends on countries' relative income, size, and cross correlation of shocks.

Original languageEnglish
Pages (from-to)1-11
Number of pages11
JournalJournal Of Public Economics
Volume112
DOIs
Publication statusPublished - 1 Apr 2014

Keywords

  • Bargaining space
  • Common currency
  • Fiscal union
  • Heterogeneous countries
  • Voting weights

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