Effects of the European Economic and Monetary Union (Emu) on Taxation and Interest Spending of National Governments
36 Pages Posted: 15 Feb 2006
Date Written: July 1997
This paper examines the interest spending and taxation channels through which EMU could affect the public finances. It provides a framework for examining different views on a further narrowing of interest rate differentials. A model of Blanchard and Fischer is amended to analyze the two channels, and empirical evidence on the tax harmonization process is presented. The paper argues that "high-debt" and "high-tax" countries pursuing prudent fiscal policies could benefit the most from EMU: if monetary and widespread fiscal discipline are jointly established, interest rates could decline rapidly, while tax harmonization is likely to be gradual.
Keywords: economic integration, tax harmonization, joint analysis of monetary and fiscal policy, European Monetary Union
JEL Classification: E63, F36, H20
Suggested Citation: Suggested Citation