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of Jaime Luque

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A Volatility-based Theory of Fiscal Union Desirability

Journal of Public Economics (2014)
Jaime Luque
Massimo Morelli
José Tavares
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ABSTRACT

Heterogeneous countries may rationally choose to form a currency union first, and a fiscal union later. We find, and illustrate empirically for the EMU countries, reasonable volatility conditions under which this sequencing in the deepening process is indeed rationalizable. Changes in the distribution of expected income shocks require a reassignment of political weights to restore unanimous support for an added fiscal dimension. The bargaining space depends on countries relative income, size, and cross correlation of shocks.

KEYWORDS

Fiscal Union, Uncertainty, Autarky, Consensus, Voting Weights.

DISCIPLINES

Political Economy, Public Economics and Regional Economics

PUBLICATION DATE

2014

CITATION INFORMATION

Jaime Luque, Massimo Morelli and José Tavares. "A Volatility-based Theory of Fiscal Union Desirability" Journal of Public Economics Vol. 112 Iss. April (2014)
Available at: http://works.bepress.com/luque/5/

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