This document discusses topics related to fiscal policy coordination in a currency union, including policy coordination approaches and challenges, fiscal multipliers theory and empirical evidence, and social insurance and labor market policies. Specific areas examined include tax competition between countries, the effect of different types of government spending on multipliers, the impact of unemployment insurance on labor market risk, and the role of social insurance policies at the union level in mitigating economic risks across members.

1. Stabiliza(on
(fiscal)
policy
in
a
currency
union
– Policy
coordina,on:
What
&
how?
– Fiscal
mul,pliers:
Theory
and
empirics.
– Social
insurance
and
labour
market
policies.
ADEMU
1
The objectives of WP #2

2. Policy
coordina,on:
what
&
how?
V
V
Chari
and
Patrick
Kehoe
(UCL)
• Is
Europe
an
op,mal
monetary/fiscal
area?
• Mundell
criterion:
Correlated
shocks
• Not
if
shocks
are
credibility
shocks
• Shocks
that
you
respond
to
under
discre,on
but
that
you
would
not
want
to
respond
to
under
commitment:
It
is
best
if
those
shocks
are
uncorrelated.
• If
shocks
are
uncorrelated
that
provides
commitment
• Is
Europe
an
op,mal
monetary/fiscal
area?

3. Policy
coordina,on:
what
&
how?
Juan
Pablo
Nicolini
and
Pedro
Teles
(Catolica-­‐Lisbon)
• Tax
compe,,on
• Benefits
may
be
large
rela,ve
to
the
size
of
the
country
• Costs
may
be
propor,onate
to
the
size
of
the
country
– Costs
are
inefficient
domes,c
taxa,on
– Or
exclusion
from
insurance
schemes
– (condi,onality
of
assistance
packages
related
to
tax
compe,,on
in
Ireland,
in
Cyprus)
• Tax
havens
tend
to
be
small,
countries
or
regions
in
countries
• Implica,ons
for
policy?

4. Fiscal
mul,pliers:
Theory
and
empirics
• Alban
Mouha
(TSE)
and
Patrick
Fève
(TSE):
Value
of
structural
VARs.
Assessing
the
iden,fica,on
approach.
• Evi
Pappa
(EUI):
Size
of
the
mul,plier
depending
on
the
component
of
expenditure.
• Mar,al
Dupaigne
(TSE)
and
Patrick
Féve
(TSE):
The
spending
mul,plier
and
the
specifica,on
of
preferences.
• Franck
Por,er
(TSE):
New
mechanism
for
government
spending
to
deliver
posi,ve
mul,pliers:
Gains
from
trade
between
agents
in
the
economy.
• Franck
Por,er
(TSE):
Role
of
public
spending
during
periods
of
liquida,on
of
over
accumulated
capital.

5. Social
insurance
and
labour
market
policies
Hamish
Low
(Cambridge),
Pontus
Rendahl
(Cambridge),
Morten
Ravn
(UCL)
and
Vincent
Sterk
(UCL)
• Labour
market
risk
and
the
impact
of
unemployment
insurance.
• Morten
Ravn
(UCL)
and
Vincent
Sterk
(UCL):
– Because
of
uninsurable
employment
risk,
a
nega,ve
shock
can
increase
precau,onary
savings,
decreasing
natural
rates
to
possibly
nega,ve
levels.
– Monetary
policy
may
not
be
able
to
stabilize
real
rates
around
nega,ve
natural
rates.
– Also,
under
s,cky
prices,
a
common
monetary
policy
cannot
stabilize
rates
around
natural
rates
that
differ
across
countries.

6. Social
insurance
and
labour
market
policies
Morten
Ravn
(UCL)
and
Vincent
Sterk
(UCL)
• Need
for
social
insurance
policies
that
can
mi,gate
these
risks.
• Need
for
those
policies
at
the
Union
level.
• Specially
in
a
world
in
which
countries
may
be
restricted
in
how
much
they
can
borrow
– in
a
(German)
fiscal
control
model
– or
in
an
American
model
that
allows
for
sovereign
default

7. Social
insurance
and
labour
market
policies
Juan
Dolado
(EUI)
• Labour
market
risks
in
dual
labour
markets,
with
high/
low
employment
protec,on.
• Benefits
from
of
a
‘Single
Contract’
–
with
increasing
severance
pay
in
job
tenure.
Sumudu
Kankanamge
(TSE)
• Time
inconsistency
of
unemployment
insurance
policies.

8. Social
insurance
and
labour
market
policies
Chris,an
Bayer
(Bonn),
Thomas
Hintermaier
(Bonn)
and
Moritz
Schularick
(Bonn)
• Poreolio
composi,on
of
private
wealth
and
implica,ons
for
business
cycles.
• Historical
varia,on
in
real
estate
prices
and
in
mortgage
debt,
across
countries.
• Relevance
of
differences
in
na,onal
pension
systems,
unemployment
benefits,
and
health
insurance.