DP1057 Fiscal Flows in the United States and Canada: Lessons for Monetary Union in Europe

Author(s): Tamim Bayoumi , Paul R Masson

Publication Date: November 1994

Keyword(s): Fiscal Policy , Monetary Union

JEL(s): H11 , H23 , H77

Programme Areas: International Macroeconomics

Link to this Page: www.cepr.org/pubs/dps/DP1057.asp

Regional flows of federal taxes and transfers within the United States and Canada are used to analyse long-term fiscal flows (the redistributive element) and short-term responses to regional business cycles (the stabilization element). In the United States, long-run flows amount to 22 cents in the dollar while the stabilization effect is 31 cents in the dollar. In Canada the redistributive effect is larger (39 cents) and the stabilization effect smaller (17 cents). Federal flows appear to depend on the institutional structure of the country concerned. In both countries, however, the redistributive element is considerably larger than the amounts involved in the EC Structural Funds programme. As for stabilization, national fiscal policies in the EC appear to have been as effective as federal governments in the United States and Canada in cushioning shocks to incomes.