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Hamilton's paradox revisited: alternative lessons from US history

Schelkle, Waltraud (2017) Hamilton's paradox revisited: alternative lessons from US history. CEPS working document (2017/10). Centre for European Policy Studies, Brussels, Belgium. ISBN 9789461386373

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Abstract

Armed with the knowledge of today, a scholar revisits the US historical experience with fiscal federalism and learns how it avoided three pitfalls now facing the euro area. The lingering crisis of the euro area has made leading observers call for the completion of the economic and monetary union with fiscal federalism. They point to the US federation as the example to emulate. Opponents can point to evidence from US history that strong fiscal capacities at the federal level lead to free-riding at the member state level, with “spectacular debt accumulation and disastrous failures of macroeconomic policy” (Rodden, 2006: 2) in its wake. This paper revisits the historical US evidence with the knowledge of today. It takes lessons from the euro area crisis to see whether they apply to the history of the US dollar area. The first lesson asks whether political-fiscal union should come before monetary union; a second lesson concerns the need for fiscal union; and the final lesson is about the question where fiscal discipline should be located in a monetary union. Lessons from the euro area crisis reveal trade-offs that neither monetary union can evade. This becomes apparent if one looks at the interfaces of a fiscal federation with financial and monetary integration.

Item Type: Monograph (Working Paper)
Official URL: https://www.ceps.eu/
Additional Information: © 2017 CEPS
Divisions: European Institute
Subjects: H Social Sciences > HG Finance
J Political Science > JA Political science (General)
Date Deposited: 26 Feb 2018 14:09
Last Modified: 25 Dec 2020 00:31
URI: http://eprints.lse.ac.uk/id/eprint/86872

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