[Article] Fiscal Policy in the European Monetary Union: An Analytical Framework

This article analyzes the efficiency conditions of a coordination rule and the institutional framework best adapted to this rule.

André Fourçans (ESSEC - Ecole Supérieur des Sciences Economiques et Commerciales, France) , Thierry Warin https://www.warin.ca (HEC Montréal and CIRANO (Canada))https://www.hec.ca/en/profs/thierry.warin.html
12-31-2000

Abstract

A good policy-mix between fiscal and monetary policies is a traditional prerequisite for economic stabilization. In a monetary union such as the European Monetary Union (EMU) the problem becomes more complex since the European Central Bank (ECB) conducts its policy for the economic zone as a whole whereas each member state can conduct its own fiscal policy. The questions then are how to deal with free-riding behaviors, and how to coordinate fiscal policies. The Stability and Growth Pact (SGP) is a way of dealing with these questions, but it is not an optimal means. The objective of this article is to analyze the efficiency conditions of a coordination rule. And from there, to establish the institutional framework best adapted to this rule. The proposed model starts from a position of perfect coordination of fiscal policies. Two cases are considered: (1) a strict coordination rule; (2) a flexible coordination rule. The first case is modeled within a symmetric information game, the second one within an asymmetric information situation. The theoretical results suggest policy implications about the optimal institutional structure in Europe.

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Citation

For attribution, please cite this work as

Fourçans & Warin, "Thierry Warin: [Article] Fiscal Policy in the European Monetary Union: An Analytical Framework", Global Economy Journal, 2000

BibTeX citation

@article{fourçans2000[article],
  author = {Fourçans, André and Warin, Thierry},
  title = {Thierry Warin: [Article] Fiscal Policy in the European Monetary Union: An Analytical Framework},
  journal = {Global Economy Journal},
  year = {2000},
  note = {https://warin.ca/posts/article-fiscal-emu/},
  doi = {10.2202/1524-5861.1020}
}