Universitat Autònoma de Barcelona
We derive the optimal fiscal transfer scheme for countries in a monetary union to off-set the welfare losses resulting from asymmetric shocks and nominal rigidities. Optimal transfers involve a trade-off between reducing national output gaps and the provision of consumption insurance across countries, where the weight of the former increases relative to the latter as consumption home bias rises. The welfare gains from optimal transfers increase in both home bias and export substitutability. When these parameters are calibrated to the data for specific euro area countries, the welfare gains from optimal transfers are as high as 3.6% of permanent consumption.
The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
English
Fiscal union; Currency union; Monetary union; Optimal fiscal policy
European Commission 649396
Barcelona Graduate School of Economics. ADEMU working paper series ;
open access
Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original.
https://creativecommons.org/licenses/by/4.0/
Working papers [2842]
