A Fiscal Capacity for the Euro Area: Lessons from Existing Fiscal-Federal Systems

58 Pages Posted: 8 Apr 2020

See all articles by Pablo Burriel

Pablo Burriel

Banco de España

Panagiotis Chronis

Bank of Greece - Economic Research Department

Maximilian Freier

European Central Bank (ECB)

Sebastian Hauptmeier

European Central Bank (ECB) - Directorate General Economics

Lukas Reiss

affiliation not provided to SSRN

Dan Stegarescu

Center for European Economic Research (ZEW)

Stefan Van Parys

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: April, 2020

Abstract

After the financial and economic crisis in Europe, a broad consensus has emerged that a stronger fiscal dimension may be needed to complete the architecture of Economic and Monetary Union (EMU). This paper analyses the performance of interregional transfers in existing fiscal-federal systems, notably in Austria, Belgium, Germany, Spain and the United States, and aims to draw lessons for the design of a euro area fiscal instrument. The empirical risk-sharing analysis in this paper suggests that effective cross-regional stabilisation of asymmetric shocks tends to work via direct cash transfers to households, such as unemployment benefits, which are financed out of cyclical central government taxes and social security contributions. This would suggest that a euro area budgetary instrument for stabilisation should be designed as a tool that enhances the automatic stabilisation capacity in the single currency area. At the same time, it seems important that a prospective central stabilisation instrument for the euro area would be integrated in an overall fiscal policy framework that ensures proper incentives for national policymakers.

Keywords: euro area fiscal capacity, fiscal federalism, fiscal risk-sharing

JEL Classification: E62, H11, H77

Suggested Citation

Burriel, Pablo and Chronis, Panagiotis and Freier, Maximilian and Hauptmeier, Sebastian and Reiss, Lukas and Stegarescu, Dan and Van Parys, Stefan, A Fiscal Capacity for the Euro Area: Lessons from Existing Fiscal-Federal Systems (April, 2020). ECB Occasional Paper No. 239, Available at SSRN: https://ssrn.com/abstract=3571387

Pablo Burriel (Contact Author)

Banco de España ( email )

Madrid 28014
Spain

Panagiotis Chronis

Bank of Greece - Economic Research Department ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Maximilian Freier

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Sebastian Hauptmeier

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Lukas Reiss

affiliation not provided to SSRN

Dan Stegarescu

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany
+49 621 1235 167 (Phone)
+49 621 1235 215 (Fax)

Stefan Van Parys

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
22
Abstract Views
218
PlumX Metrics