The Euro Area Crisis : Need for a Supranational Fiscal Risk Sharing Mechanism?

Author/Editor:

Davide Furceri ; Aleksandra Zdzienicka

Publication Date:

September 25, 2013

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The aim of this paper is to assess the effectiveness of risk sharing mechanisms in the euro area and whether a supranational fiscal risk sharing mechanism could insure countries against very severe downturns. Using an unbalanced panel of 15 euro area countries over the period 1979-2010, the results of the paper show that: (i) the effectiveness of risk sharing mechanisms in the euro area is significantly lower than in existing federations (such as the U.S. and Germany) and (ii) it falls sharply in severe downturns just when it is needed most; (iii) a supranational fiscal stabilization mechanism, financed by a relatively small contribution, would be able to fully insure euro area countries against very severe, persistent and unanticipated downturns.

Series:

Working Paper No. 13/198

English

Publication Date:

September 25, 2013

ISBN/ISSN:

9781484334201/1018-5941

Stock No:

WPIEA2013198

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

34

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