The aim of the paper is to show how in the European monetary union, State intervention can have positive effects not only on growth but also on public balances and debt. In fact the relation between the centralized monetary policy and the decentralized fiscal policy partially solves the lack of coordination between the two. Each time the fiscal expansion in the single country is not accompanied by an interest rate increase by the Central Bank, the expansionary effect of public spending, initially financed through the emission of public bonds, will be reinforced by the endogenous money creation due to the increase of growth. The final result is – if growth is higher than the rate of interest – not only an increase of equilibrium income, but also a reduction of the debt.

Positive effects of a decentralized fiscal expansion in the European Monetary Union

CANALE, Rosaria Rita
2008-01-01

Abstract

The aim of the paper is to show how in the European monetary union, State intervention can have positive effects not only on growth but also on public balances and debt. In fact the relation between the centralized monetary policy and the decentralized fiscal policy partially solves the lack of coordination between the two. Each time the fiscal expansion in the single country is not accompanied by an interest rate increase by the Central Bank, the expansionary effect of public spending, initially financed through the emission of public bonds, will be reinforced by the endogenous money creation due to the increase of growth. The final result is – if growth is higher than the rate of interest – not only an increase of equilibrium income, but also a reduction of the debt.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11367/27090
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