In this new IIIS Discussion Paper, I discuss the potential role of fiscal policy in stabilising the external account. The main focus is on the management of imbalances within the euro area; I pay particular attention to the Irish situation.
You can download the paper here.
2 replies on “External Imbalances and Fiscal Policy”
Many thanks for this post and link to an insightful paper. I think this shows the true alue of this blog in bringing research of this nature to the attention of non-specialist, but interested, people like myself. (Just a small gripe: the labels do not appear on the figures so it difficult to identify the sources of the differing impacts.)
A number of things struck me:
1. the need for an independent fiscal stability council (reference in paper) to, at least, present an objective assessment of fiscal options to the decision-makers;
2. the difficulty for a small economy to maintain an external balance in a currency union when one dominant member, in this case Germany, is intent on generating enormous external surpluses, and, following on from this,
3. the need for much greater fiscal resources and co-ordination of these resources within the currency union to prevent the internal burden of adjustment becoming excessive for individual members, and
4. (my old hobby horse) the need to strip out the excessive and unjustified costs in the state, semi-state and private sheltered sectors that have driven the price level for final household consumption more than 20% above the Eurozone average level – and are generating increasing popular opposition to further reductions in nominal pay.
And the possibility that any of these issues will be addressed…probably zero.
NO mention of Ireland in this article on Euro area!
Politics: They have to maintain as much control, CONTROL, as possible. Why? It is how they get what they want. If they made government perfect, by reducing their input it is a good first step, they would be less relevant and the consequences of that …..just not practical.
Address it at the EU level maybe? The next move has to be an EU wide tax. In Australia, they invented GST (OK, it is VAT with a snappy catchy title!) recently and the states were compensated for their loss of TOT etc by the Feds. I can see this happening EU wide. They also tend to be more logical than Ballymagash UDC.