A volatility-based theory of fiscal union desirability

Jaime Luque; Massimo Morelli; José Tavares

doi:10.1016/j.jpubeco.2014.01.010

A volatility-based theory of fiscal union desirability

Jaime Luque, Massimo Morelli, José Tavares

NOVA School of Business and Economics (NOVA SBE)

Research output: Contribution to journal › Article › peer-review

9 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 language	English
Pages (from-to)	1-11
Number of pages	11
Journal	Journal Of Public Economics
Volume	112
DOIs	https://doi.org/10.1016/j.jpubeco.2014.01.010
Publication status	Published - 1 Apr 2014

Keywords

Bargaining space
Common currency
Fiscal union
Heterogeneous countries
Voting weights

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10.1016/j.jpubeco.2014.01.010

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KW - Voting weights

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A volatility-based theory of fiscal union desirability

Abstract

Keywords

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