Fiscal Stabilization in the United States: Lessons for Monetary Unions

Abstract

The debate about the use of fiscal instruments for macroeconomic stabilization has regained prominence in the aftermath of the Great Recession, and its relevance has suddenly increased further, after the recent Covid-19 shock. The analysis of fiscal stabilization in the United States, a monetary union equipped with a common fiscal capacity, has often informed the literature on the European EMU and could serve as a reference for its possible future reforms. This paper expands that literature in three ways: first, by measuring stabilization not only as inter-state risk-sharing of asymmetric shocks, but also as intertemporal stabilization of common shocks; second, by doing this for specific items in the US federal budget, both on the revenue and on the expenditure side; and third, by also measuring the impact of the federal system of unemployment benefits and of its extension as a response to the Great Recession. Corporate and personal income tax, on the revenue side, and social security benefits and federal grants, on the spending side, are the most effective items. The US federal system of unemployment insurance provides great stabilization in the event of a large shock, in particular when enhanced by the discretionary program of extended benefits. These findings imply that a proper design of the budget can maximize its stabilization effect, when it helps bridging the gap between higher mobility of capital and lower mobility of labor, by collecting revenues based on the income of the most mobile factor (corporate income tax) and providing support to the income of the least mobile factor (social security).

Analisis Koreksi Fiskal atas Pendapatan, Beban dan Pajak Tangguhan untuk Menentukan Besarnya Pajak Penghasilan yang Terutang pada PT. DCN Indonesia

“…DCN Indonesia adalah perusahaan telah melakukan kewajiban membayar pajak yang menurut pendapat Wajib Pajak telah sesuai dengan kentuan perpajakan. Akan tetapi, setiap dilakukannya pemeriksaan pajak masih saja terdapat kesalahan pada koreksi fiskal yang dilakukan oleh Perusahaan (Nikolov & Pasimeni, 2023). Sehingga hal ini menyebabkan terjadinya kekeliruhan dalam perhitungan Pajak Penghasilan Badan yang dilaporkan mengakibatkan kesalahan sehingga perusahaan memperoleh sanksi.…”

Effects of financial transfers on redistribution and risk sharing within the EU and the Euro Area

“…Last, the results of the study suggest that a supranational fiscal risk sharing mechanism, financed at relatively little cost would be quite sufficient to cushion member states in the event of extreme, persistent and unexpected downturns. Nikolov and Pasimeni [20] analyze the effectiveness of macroeconomic stabilization channels and unemployment compensation in the context of the great recession (2008)(2009)(2010). They show that corporate income taxes are the most important instrument against aggregate shocks (stabilization) and social payments and personal taxes against asymmetric shocks (risksharing).…”

Risk sharing in currency unions: The migration channel

“…And while the role of fiscal policy (e.g. Evers 2015;Nikolov and Pasimeni 2019) as well as financial and banking integration has received particular attention in a risk-sharing context (Cimadomo et al 2020;Demyanyk et al 2007;Hoffmann et al 2019), the literature following ASY has thus far ignored the role of migration as a distinct channel through which risk sharing takes place. 2 This is somewhat surprising, given the emphasis that critics of the Euro have placed on the Mundellian criterion of labor mobility.…”