Effects of the European Economic and Monetary Union (Emu) on Taxation and Interest Spending of National Governments

36 Pages Posted: 15 Feb 2006

See all articles by Francesco Paolo Mongelli

Francesco Paolo Mongelli

European Central Bank (ECB); Goethe University Frankfurt

Date Written: July 1997

Abstract

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

Mongelli, Francesco Paolo, Effects of the European Economic and Monetary Union (Emu) on Taxation and Interest Spending of National Governments (July 1997). IMF Working Paper No. 97/93, Available at SSRN: https://ssrn.com/abstract=882605

Francesco Paolo Mongelli (Contact Author)

European Central Bank (ECB) ( email )

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Frankfurt am Main, 60314
Germany

Goethe University Frankfurt ( email )

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Frankfurt am Main, 60323
Germany

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