The Eastern Caribbean Currency Union: Would a Fiscal Insurance Mechanism Mitigate National Income Shocks?
January 1, 2012
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Summary
This paper studies the nature of the shocks affecting the Eastern Caribbean Currency Union (ECCU), and examines whether a hypothetical Eastern Caribbean fiscal insurance mechanism could insure member countries of the union against asymmetric national income shocks. The empirical results suggest that a one dollar reduction in an ECCU member country's per capita personal income could trigger, through reduced income taxes and increased transfers, flows equivalent to about 7 percent of the initial income shock. Each member of the currency union could benefit as well, although the extent of shock mitigation differs across individual countries.
Subject: Disposable income, Income shocks, Income tax systems, National accounts, Personal income, Revenue administration, Taxes
Keywords: Caribbean, Disposable income, Eastern Caribbean Currency Union, ECCU country, ECCU growth, ECCU member, ECCU-member country, Fiscal insurance mechanism, income shocks, income tax revenue, Income tax systems, insurance mechanism, Personal income, transfers, WP
Pages:
23
Volume:
2012
DOI:
Issue:
017
Series:
Working Paper No. 2012/017
Stock No:
WPIEA2012017
ISBN:
9781463931223
ISSN:
1018-5941
