Is Fiscal Policy Coordination in Emu Desirable?

45 Pages Posted: 3 Feb 2006

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 - Tinbergen Institute Amsterdam (TIA); Netspar

Xavier Debrun

International Monetary Fund (IMF) - Research Department

Franc Klaassen

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

Multiple version iconThere are 3 versions of this paper

Date Written: November 2001

Abstract

It is widely argued that Europe`s unified monetary policy calls for international coordination at the fiscal level. We survey the issues involved in such coordination in the perspective of macroeconomic stabilization. A simple model identifies the circumstances under which coordination may be desirable. Coordination is beneficial when the cross-country correlation of the shocks is low. However given the potentially adverse reaction by the ECB (as a result of free-riding or a conflict on the orientation of the policy mix) fiscal coordination is likely to prove counterproductive when demand or supply shocks are highly symmetric across countries and the governments are unable to acquire a strategic leadership position vis-à-vis the ECB.

Keywords: EMU fiscal coordination shocks demand management

JEL Classification: E52 E58 E61 E63

Suggested Citation

Beetsma, Roel M. W. J. and Debrun, Xavier and Klaassen, Franc, Is Fiscal Policy Coordination in Emu Desirable? (November 2001). IMF Working Paper, Vol. , pp. 1-45, 2001. Available at SSRN: https://ssrn.com/abstract=880242

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

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

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Xavier Debrun

International Monetary Fund (IMF) - Research Department ( email )

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Franc Klaassen

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Tinbergen Institute ( email )

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