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Fiscal policy in a monetary union: comparing different features of Next Generation EU

Published online by Cambridge University Press:  22 May 2025

Caroline Bozou Ninou  and
Jérôme Creel
Caroline Bozou Ninou
Affiliation:
Université Paris 1 Panthéon-Sorbonne, Paris, France
Jérôme Creel*
Affiliation:
ESCP Business School and Sciences Po-OFCE, Paris, France
*
Corresponding author: Jérôme Creel; Email: jcreel@escp.eu
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Abstract

We build a two-country DSGE model of a monetary union to compare systematically the economic impact of a fiscal stimulus according to different features: domestic or European, public investment or public consumption, unfunded (thanks to grants) or debt-funded, on the core or periphery, and in normal or abnormal (post-ZLB) times. We highlight the importance of spillover wealth effects. Grants play a more important role when it comes to funding public consumption rather than investment, in contrast with the actual use of collective EU funds. A side result permits to assess the opportunity cost of accepting loans.

Keywords

Fiscal policyNext Generation EUopen economyNew Keynesian DSGE modelE12E62F41H68
Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e107
Copyright
© The Author(s), 2025. Published by Cambridge University Press

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