Please use this identifier to cite or link to this item:
|Title:||Political economy of fiscal unions|
|Keywords:||Fiscal federalism;Risk sharing;Disintegration;Median voter|
|Citation:||European Journal of Political Economy, 40: pp. 147 - 157 (2015)|
|Abstract:||Fiscal unions often use fiscal transfers to counter asymmetric shocks, but such transfers may be politically controversial. I present a model of a two-region fiscal union with region-specific shocks where the threat of secession imposes a limit on fiscal redistribution between regions. I show that both correlation of shocks across regions and their persistence over time are important for political support for integration. The gains from inter-regional risk sharing are potentially large when shocks are negatively correlated and temporary. In contrast, unions with negatively correlated permanent shocks are likely to be fragile.|
|Appears in Collections:||Dept of Economics and Finance Research Papers|
Items in BURA are protected by copyright, with all rights reserved, unless otherwise indicated.