Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229553
Authors: 
Beetsma, Roel
Kopits, George
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8735
Abstract: 
While the EU recovery plan provides a useful step in alleviating the economic effects of the coronavirus crisis and achieving further European integration, a permanent fiscal stabilization capacity dealing with major crises is still missing. Such a EU-wide stabilization function would be in accordance with the subsidiarity principle, enshrined in the Treaty of Maastricht, as the risk-sharing that it provides can only be conducted at the supranational level. We envisage a mechanism to semi-automatically respond to region- and country-specific shocks via a central fiscal stabilization fund (CFSF). A simple model incorporating hysteresis, cross-border externalities and moral hazard, is deployed to illustrate the optimal responses of the CFSF to these shocks. A well-designed CFSF has the potential to improving welfare not only in crisis-hit member countries, but also in the union as a whole.
Subjects: 
subsidiarity principle
shocks
fiscal stabilization
transfers
European Union
corona
JEL: 
E32
E62
E63
Document Type: 
Working Paper

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