Effects of the European Economic and Monetary Union (EMU) on Taxation and Interest Spending of National Governments

Author/Editor:

Francesco P Mongelli

Publication Date:

July 1, 1997

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:

This paper examines the interest spending and taxation channels through which EMU could affect the public finances. It provides a framework for examining different views on a further narrowing of interest rate differentials. A model of Blanchard and Fischer is amended to analyze the two channels, and empirical evidence on the tax harmonization process is presented. The paper argues that “high-debt” and “high-tax” countries pursuing prudent fiscal policies could benefit the most from EMU: if monetary and widespread fiscal discipline are jointly established, interest rates could decline rapidly, while tax harmonization is likely to be gradual.

Series:

Working Paper No. 1997/093

Subject:

Fiscal policy Government asset and liability management National accounts Public debt Public financial management (PFM) Return on investment Tax harmonization Taxes

English

Publication Date:

July 1, 1997

ISBN/ISSN:

9781451951271/1018-5941

Stock No:

WPIEA0931997

Pages:

36

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