Fiscal Policy Regimes in a Monetary Union

Abstract

The question of fiscal policy setting in the projected European MU has received widespread attention in the literature. The Maastricht Treaty clarified the intended form, but left much unsaid. In response, calls have been made for further analysis of both the appropriate objectives and operation of fiscal policy in such a regime. Chapter 6 examines the issue by comparing various fiscal regimes under MU by their ability to stabilize output and inflation for the individual members and the EU as a whole. The chapter also examines an area which has not received attention: the effect of the core’s choice on those left out.