Labor Mobility and Fiscal Policy in a Currency Union

39 Pages Posted: 27 Jan 2015

See all articles by Angelo S. Baglioni

Angelo S. Baglioni

Catholic University of the Sacred Heart of Milan

Andrea Boitani

Catholic University of the Sacred Heart of Milan

Massimo Bordignon

Universita Cattolica; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 26, 2015

Abstract

Labor mobility is commonly taken as a property of an optimal currency area. But how does that property affect the outcome of fiscal policies? In our model, we show that perfect (costless) labour mobility is not necessarily welfare improving, since it prevents the national fiscal authorities from pursuing independent policies, opening the way to a coordination problem. With symmetric shocks, the federal fiscal policy can improve welfare by playing a coordinating role. With asymmetric shocks, the federal policy allows both countries to reach a higher productive efficiency, provided the federal government is endowed with a federal budget.

Keywords: currency union, labor mobility, fiscal policy, federation

JEL Classification: E620, H770

Suggested Citation

Baglioni, Angelo and Boitani, Andrea and Bordignon, Massimo, Labor Mobility and Fiscal Policy in a Currency Union (January 26, 2015). CESifo Working Paper Series No. 5159, Available at SSRN: https://ssrn.com/abstract=2555573 or http://dx.doi.org/10.2139/ssrn.2555573

Angelo Baglioni

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, n.1
Milano, 20123
Italy
390272344024 (Phone)
390272342781 (Fax)

Andrea Boitani

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Massimo Bordignon (Contact Author)

Universita Cattolica ( email )

20123 Milano
Italy
+39-2-5836-3300/1 (Phone)
+39-2-5836-3302 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
100
Abstract Views
729
Rank
479,512
PlumX Metrics