Abstract
The Maastricht Treaty on the move towards Economic and Monetary Union (EMU) raises the prospect of the establishment of a common currency area among EC countries without there being a common fiscal policy. Some have argued (notably, Sala-i-Martin and Sachs, 1992) that a community-wide tax and transfer system would be desirable in order to cushion regional shocks, since member countries in a monetary union are not be able to use the exchange rate instrument for that purpose. Indeed, according to those authors, such a federal system may be essential for the survival of EMU. In contrast, the EC currently has no fiscal mechanisms at the Community level for offsetting short-run, or cyclical, fluctuations—such as unemployment insurance or an EC-wide income tax.
The views expressed here are personal to the authors and do not represent those of the International Monetary Fund.
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Bayoumi, T., Masson, P.R. (1994). What can the Fiscal Systems in the United States and Canada Tell Us about EMU?. In: Welfens, P.J.J. (eds) European Monetary Integration. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-97540-0_10
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DOI: https://doi.org/10.1007/978-3-642-97540-0_10
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