One Scheme Fits All: A Central Fiscal Capacity for the Emu

68 Pages Posted: 14 Apr 2023

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

Jacopo Cimadomo

European Central Bank (ECB)

Josha Van Spronsen

University of Amsterdam

Abstract

This paper proposes a central fiscal capacity for the euro area that generates transfers in response to eurozone, country, and region-specific shocks. Themain novelty of this fiscal capacity is that it allows a joint response to these three types of shocks within a single scheme. Based on NUTS3 regional data over the last two decades and regional fiscal multiplier estimates, our analysis shows that - with a limited risk of moral hazard - substantial stabilisation could have been achieved in response to the eurozone and regional shocks, while country-specific shocks were on average weaker and therefore needed less stabilisation.

Keywords: Central fiscal capacity, euro area, macroeconomic stabilisation, multilevel factor model, Bayesian inference

Suggested Citation

Beetsma, Roel M. W. J. and Cimadomo, Jacopo and Van Spronsen, Josha, One Scheme Fits All: A Central Fiscal Capacity for the Emu. Available at SSRN: https://ssrn.com/abstract=4419040 or http://dx.doi.org/10.2139/ssrn.4419040

Roel M. W. J. Beetsma (Contact Author)

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

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Jacopo Cimadomo

European Central Bank (ECB) ( email )

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Josha Van Spronsen

University of Amsterdam ( email )

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Amsterdam, 1018 WB
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