Labor Mobility and Fiscal Policy in a Currency Union

Download or read book Labor Mobility and Fiscal Policy in a Currency Union written by Angelo S. Baglioni and published by . This book was released on 2015 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Labor mobility is commonly taken as a property of an optimal currency area. But how does that property affect the outcome of fiscal policies? In our model, we show that perfect (costless) labour 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.