Cooperative and non-cooperative fiscal stabilization policies in the EMU

Abstract

Cooperative and non-cooperative fiscal stabilization policies in the EMU Engwerda, J.C.; van Aarle, B.; Plasmans, J.E.J. General rightsCopyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.-Users may download and print one copy of any publication from the public portal for the purpose of private study or research -You may not further distribute the material or use it for any profit-making activity or commercial gain -You may freely distribute the URL identifying the publication in the public portal Take down policyIf you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim. AbstractIn this paper we analyze the interaction of fiscal stabilization policies in the Economic and Monetary Union (EMU). The "Excessive Deficits" Procedure of the Maastricht Treaty and its elaborations in the recent "Stability and Growth Pact" introduce a set of fiscal stringency requirements on national fiscal policies. Situations might arise where the need for fiscal flexibility and the fiscal stringency requirements will create a conflict and suboptimal macroeconomic policies are implemented. We analyze macroeconomic adjustment under non-cooperative and cooperative fiscal policy design in the EMU using a dynamic games approach. In particular we consider how fiscal stringency requirements like the Stability and Growth Pact affect fiscal policy design under EMU and study the consequences of the introduction of a fiscal transfer mechanism between countries.JEL classification: C7; E6; F4

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