Economics Commons^™

Heterogeneous countries may rationally choose to form a currency union first, and a fiscal union later. We find, and illustrate empirically for the EMU countries, reasonable volatility conditions under which this sequencing in the deepening process is indeed rationalizable. Changes in the distribution of expected income shocks require a reassignment of political weights to restore unanimous support for an added fiscal dimension. The bargaining space depends on countries' relative income, size, and cross correlation of shocks.

We present empirical evidence on whether the introduction of the euro has changed the effect of economic fundamentals on the growth rates of euro countries' GDPpc and GDPpc volatility. We find that there is a statistically significant structural break in the impact of increments in government debt on both economic growth and uncertainty. In particular, after adoption of the euro increments in government debt decreased growth and increased uncertainty. These results are robust to a battery of checks, including exclusion of the recent financial crisis period, comparison with non-euro European countries, and controlling for different debt/GDP ratios.

This paper provides a general equilibrium model where jurisdictions offer not only public goods, but also job opportunities. In a context of multiple types of consumers, labor complementarities, and anonymous crowding, heterogeneous populated communities form in equilibrium with an endogenous wage system that is labor-type and jurisdiction-type dependent. Equilibrium jurisdiction structures depend on the relative scarcity of labor types, unlike the situation in Berglas' (1976) partial equilibrium analysis. For a large economy, we prove that equilibrium exists and that the set of equilibria is equivalent to the core.