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Identifier to cite or link to this item: https://hdl.handle.net/10086/18696

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Title
Theory of Optimal Fiscal Unions
Creator
Creator Name
Fidrmuc, Jan Fidrmuc, Jan
Affiliation
Affiliation Name
Brunel University
Key Word
Fiscal federalism
Risk sharing
Disintegration
Median voter
Optimum Currency Areas
Abstract
I propose a political-economy model of optimal .scal unions where the threat of secession imposes a limit on .scal redistribution between regions. Fiscal transfers take place indirectly, through centralized .scal policy. I argue that the stability of .scal unions depends on the nature of economic shocks. My analysis thus presents a .scal-federalism counterpart to the theory of optimum currency areas. However, I show that both the correlation of shocks across regions and their persistence over time are important. Negatively correlated temporary shocks allow greatest gains from inter-regional risk sharing and therefore asymmetric shocks need not threaten the stability of integration.
Publisher
Hitotsubashi University Research Project of Policies for East Asia
Issued Date
2010-10
Language
English(eng)
Resource Type
technical report
Version Type
VoR
Is Part OfRelation -
Related Title
Fukino DP Series, No. 023
Number of Pages
21
Sponsorship
Fukino foundation
Appears in Collections
Fukino Project Discussion paper series
URL
https://hdl.handle.net/10086/18696