Liability-Creating Versus Non-Liability-Creating Fiscal Stabilization Policies - Ricardian Equivalence, Fiscal Stabilization, and Emu

Plans to create a single European currency have generated work in many areas of economics, as researchers try to assess both the implications and the advisability of this undertaking. One of these areas has been the operation of fiscal stabilizers. Without the monetary flexibility provided by separate currencies, labor mobility, wage flexibility, and fiscal stabilizers all represent potentially important ways of reducing the impact of idiosyncratic cyclical disturbances across regions...
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Plans to create a single European currency have generated work in many areas of economics, as researchers try to assess both the implications and the advisability of this undertaking. One of these areas has been the operation of fiscal stabilizers. Without the monetary flexibility provided by separate currencies, labor mobility, wage flexibility, and fiscal stabilizers all represent potentially important ways of reducing the impact of idiosyncratic cyclical disturbances across regions of the projected currency union.2 The function of fiscal stabilization policies in monetary unions has already generated an extensive academic literature, going back to Mundell (1961) and Kenen (1969).3 In the European context, it has also been the subject of an official report, European Commission (1977), and the Commission has more recently published a collection of papers devoted to the fiscal requirements for the successful operation of EMU.4