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

July 1, 1997

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Francesco P Mongelli. Effects of the European Economic and Monetary Union (EMU) on Taxation and Interest Spending of National Governments, (USA: International Monetary Fund, 1997) accessed November 21, 2024

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.

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

Keywords: Devaluation risk premia, Discount rate, Economic integration, EMU member, EU member, Europe, European Monetary Union, Financial market, Government asset and liability management, Interest rate differential, Joint analysis of monetary and fiscal policy, Return on investment, Risk premium, Tax harmonization, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1997/093
Stock No:

WPIEA0931997
ISBN:

9781451951271
ISSN:

1018-5941

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