Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/234480 
Year of Publication: 
2020
Series/Report no.: 
ECB Occasional Paper No. 239
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
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.
Subjects: 
euro area fiscal capacity
fiscal risk-sharing
fiscal federalism
JEL: 
E62
H11
H77
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4245-4
Document Type: 
Research Report

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