Fiscal transfers in a monetary union with sovereign risk

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• dc.contributor.author Almeida Bandeira, Guilherme deca
• dc.date.accessioned 2016-12-07T12:38:01Z
• dc.date.available 2016-12-07T12:38:01Z
• dc.date.issued 2016-06
• dc.description.abstract This paper considers a scheme of fiscal transfers between member states of a monetary union subject to sovereign spread shocks. The scheme consists of a set of cross-country transfer rules triggered when sovereign spreads widen. I study its implementation in a twocountry model with financial frictions estimated for Portugal and the Eurozone. The model illustrates how domestic fiscal policy is unable to buffer the widening of sovereign spreads when public debt is high and spreads are responsive to the fiscal outlook. On the contrary, because transfers are made between governments, they alleviate the strain caused on the fiscal stance directly and reduce the pass-through of sovereign risk to private lending to firms. I find that, for welfare to improve for all member states, their relative size and fiscal profile need to be nearly symmetric. Nevertheless, I show that for a cost to the remaining members states significantly smaller than the benefits they derive from being part of the union, a small country like Portugal can secure sizeable increases in life-time consumption.ca
• dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
• dc.format.mimetype application/pdfca
• dc.identifier.uri http://hdl.handle.net/10230/27717
• dc.language.iso engca
• dc.relation.ispartofseries ADEMU Working Paper Series;47
• dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
• dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.ca
• dc.rights.accessRights info:eu-repo/semantics/openAccessca
• dc.rights.uri http://creativecommons.org/licenses/by/4.0/ca
• dc.subject.keyword Sovereign risken
• dc.subject.keyword Banksen
• dc.subject.keyword Monetary unionen
• dc.subject.keyword Fiscal transfersen
• dc.title Fiscal transfers in a monetary union with sovereign riskca
• dc.type info:eu-repo/semantics/workingPaperca