## Is Fiscal Policy Coordination in EMU Desirable?

_IMF Working Papers, November 1, 2001_

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## Bibliographic details
- Authors: Roel M. W. J. Beetsma, Xavier Debrun, Franc Klaassen
- Published: November 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451858952.001

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### Summary findings
- A unified European monetary policy motivates consideration of international fiscal coordination from the perspective of macroeconomic stabilization.
- A simple model identifies when coordination may be desirable:
  - Coordination is beneficial when the cross-country correlation of the shocks is low.
  - Coordination is likely counterproductive when demand or supply shocks are highly symmetric across countries and governments cannot acquire a strategic leadership position vis-à-vis the ECB.
- Potential adverse reactions by the ECB can arise from:
  - Free-riding by fiscal authorities.
  - A conflict on the orientation of the policy mix between fiscal authorities and the ECB.

### Model insights and scenarios
- Primary criterion for beneficial coordination:
  - Low cross-country correlation of shocks favors fiscal coordination.
- Adverse-case scenario:
  - High symmetry of demand or supply shocks across countries combined with absence of strategic fiscal leadership leads to counterproductive outcomes due to ECB reactions.

### Policy implications and considerations
- Fiscal coordination should be evaluated against:
  - The degree of shock correlation across EMU countries.
  - The likely strategic interaction between fiscal authorities and the ECB, including risks of free-riding and policy-mix conflict.
- Effective coordination may require mechanisms that:
  - Mitigate adverse ECB responses.
  - Enable a credible leadership position for fiscal authorities when needed.

### Key facts and metadata (preserved exactly)
- Authors: Roel M. W. J. Beetsma, Xavier Debrun, Franc Klaassen
- Date: November 1, 2001
- Pages: 46
- Volume: 2001
- Issue: 178
- Series: Working Paper No. 2001/178
- DOI: https://doi.org/10.5089/9781451858952.001
- Stock No: WPIEA1782001
- ISBN: 9781451858952
- ISSN: 1018-5941
- Subject keywords: Economic theory, Financial services, Fiscal policy, Fiscal stance, Inflation, Price stabilization, Prices, Real interest rates, Supply shocks

*IMF Working Paper No. 2001/178 (Beetsma, Debrun, Klaassen), November 1, 2001.*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/is-fiscal-policy-coordination-in-emu-desirable-15406_