Incomplete Integration and Contagion of Debt Distress in Economic Unions

Karayalcin, Cem ; Onder, Harun

World Bank, Washington, DC

关键词: ADVANCED ECONOMIES;    AMORTIZATION;    AMOUNT OF LOAN;    ASSETS;    BENEFICIARIES;   

DOI  :  10.1596/1813-9450-7130
RP-ID  :  WPS7130

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper compares different fiscalintegration schemes on the basis of their ability to financepublic investments and resilience to debt distress andcontagion. Complete integration schemes, where a centralauthority chooses the level of public investments withproductivity-enhancing externalities across differentjurisdictions, are shown to be superior to incompleteintegration schemes, where member governments choose publicinvestments unilaterally. As a result, equilibrium income isgreater for citizens of member states under a completeintegration scheme. Moreover, complete integration schemesare shown to be more resilient to idiosyncratic shocks andmore effective in limiting contagion of debt distress. Thisis mainly because the central authority can credibly borrowmore without risking default than member states takentogether can and it can "transfer resilience"across them if needed. These findings inform discussions onstructural aspects of secular stagnation in Europe byemphasizing a potential challenge in the institutionaldesign of fiscal responsibilities.