The Fiscal Framework in a Currency Union: Lessons from Comparison between the Euro Area and the Eastern Caribbean Currency Union

Andrew Hughes Hallett, Svend E. Hougaard Jensen

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Abstrakt

This paper draws out lessons from the euro area (EA) that are transferable to the Eastern Caribbean Currency Union (ECCU) and other Caribbean economies with fixed exchange rates. Based on observations from both the EA and the ECCU, we present a new policy framework which is capable of imposing fiscal discipline, with the aim of avoiding the risk of unsustainable fiscal policies reappearing and of preventing monetary policy from being undermined by undisciplined national governments. In the ECCU case, we find that fiscal deficits are more a result of financial and trade imbalances than fiscal indiscipline per se. Consequently, constraints on overall debt, public and private, rather than direct limits on endogenous public deficits, appear to be the appropriate response.
OriginalsprogEngelsk
TidsskriftThe World Economy
Vol/bind39
Udgave nummer6
Sider (fra-til)803-823
Antal sider21
ISSN0378-5920
DOI
StatusUdgivet - 2016

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