Optimal monetary delegation under fiscal uncertainty
1 : Université de Strasbourg
Institut d'études politiques de Strasbourg
2 : Université de Poitiers
CRIEF
Governments in a monetary union face uncertainty about their budget position. To derive their optimal fiscal policy we use the robust control approach as developed by Hansen and Sargent (2005, 2008). We show that budget uncertainty leads to higher tax distortions and poorer macroeconomic performances in the member states. From a normative perspective, we study how optimal monetary institutional parameters should be adjusted to taken account for the governments' uncertainty.