Do Monetary Handcuffs Restrain Leviathan? Fiscal Policy in Extreme Exchange Rate Regimes

40 Pages Posted: 28 Feb 2001

See all articles by Antonio Fatás

Antonio Fatás

INSEAD; Centre for Economic Policy Research (CEPR); ABFER

Andrew Kenan Rose

University of California - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: February 2001

Abstract

This Paper is an empirical study of fiscal policy in countries with extreme monetary regimes. We study members of multilateral currency unions, dollarized countries that officially use the money of another country, and countries using currency boards. We find that belonging to an international common currency area is not associated with fiscal discipline; if anything, spending and taxes are higher inside currency unions. This effect is especially pronounced for dollarized countries that unilaterally adopt the currency of another country. Currency boards are associated with fiscal restraint.

Keywords: Budget, Empirical, Government, Panel, Revenue, Spending, Tax

JEL Classification: E60, F30, F33

Suggested Citation

Fatas, Antonio and Rose, Andrew Kenan, Do Monetary Handcuffs Restrain Leviathan? Fiscal Policy in Extreme Exchange Rate Regimes (February 2001). CEPR Discussion Paper No. 2692. Available at SSRN: https://ssrn.com/abstract=261861

Antonio Fatas (Contact Author)

INSEAD ( email )

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Singapore
+6567995384 (Phone)

HOME PAGE: http://faculty.insead.edu/fatas

Centre for Economic Policy Research (CEPR)

London
United Kingdom

ABFER ( email )

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Singapore, 117592
Singapore

Andrew Kenan Rose

University of California - Haas School of Business ( email )

Berkeley, CA 94720
United States
510-642-6609 (Phone)
510-642-4700 (Fax)

HOME PAGE: http://faculty.haas.berkeley.edu/arose

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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