Angelo Baglioni, Andrea Boitani, Massimo Bordignon

Labor Mobility and Fiscal Policy in a Currency Union

Section: Articles
FinanzArchiv (FA)

Volume 72 () / Issue 4, pp. 371-406 (36)

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Labor mobility is commonly taken as a property of an optimal currency area (OCA). But how does that property affect the outcome of fiscal policies? In our model, we show that perfect (costless) labor mobility is not necessarily welfare-improving, since it prevents the national fiscal authorities from pursuing independent policies, opening the way to a coordination problem. With symmetric shocks, the federal fiscal policy can improve welfare by playing a coordinating role. With asymmetric shocks, the federal policy allows both countries to reach a higher productive efficiency, provided the federal government is endowed with a federal budget.

Angelo Baglioni No current data available.

Andrea Boitani No current data available.

Massimo Bordignon No current data available.