Working Paper: NBER ID: w17380
Authors: Michael D. Bordo; Agnieszka Markiewicz; Lars Jonung
Abstract: The recent financial crisis 2007-2009 was the longest and the deepest recession since the Great Depression of 1930. The crisis that originated in subprime mortgage markets was spread and amplified through globalised financial markets and resulted in severe debt crises in several European countries in 2010 and 2011. Events revealed that the European Union had insufficient means to halt the spiral of European debt crisis. In particular, no pan-European fiscal mechanism to face a global crisis is available at present. The aim of this study is to identify the characteristics of a robust common fiscal policy framework that could have alleviated the consequences of the recent crisis. This is done by using the political and fiscal history of five federal states; Argentina, Brazil, Canada, Germany and the United States.
Keywords: Fiscal Union; Euro Area; Monetary Union; Crisis Management; Historical Lessons
JEL Codes: H10; H70; H73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| credible no-bailout rule (G28) | fiscal discipline among subnational units (H70) |
| fiscal discipline among subnational units (H70) | excessive debt accumulation (F65) |
| absence of no-bailout rule (G33) | fiscal irresponsibility in Argentina and Brazil (N16) |
| fiscal arrangements (H39) | economic stability (E63) |
| common bond market within a fiscal union (F36) | fiscal capacity during economic downturns (E62) |
| common bond market (G10) | effective interregional transfers (F16) |
| common bond market (G10) | mitigate impacts of asymmetric shocks (F41) |