Template-Type: ReDIF-Paper 1.0 Author-Name: Angelo Baglioni Author-X-Name-First: Angelo Author-X-Name-Last: Baglioni Author-Email: angelo.baglioni@unicatt.it Author-Workplace-Name: Universitą Cattolica del Sacro Cuore Author-Workplace-Name: Dipartimento di Economia e Finanza, Universitą Cattolica del Sacro Cuore Author-Name: Andrea Boitani Author-X-Name-First: Andrea Author-X-Name-Last: Boitani Author-Email: andrea.boitani@unicatt.it Author-Workplace-Name: Universitą Cattolica del Sacro Cuore Author-Workplace-Name: Dipartimento di Economia e Finanza, Universitą Cattolica del Sacro Cuore Author-Name: Massimo Bordignon Author-X-Name-First: Massimo Author-X-Name-Last: Bordignon Author-Email: massimo.bordignon@unicatt.it Author-Workplace-Name: Universitą Cattolica del Sacro Cuore Author-Workplace-Name: Dipartimento di Economia e Finanza, Universitą Cattolica del Sacro Cuore Title: Labor mobility and fi?scal policy in a currency union Abstract: Labor mobility is commonly taken as a property of an optimal currency area. But how does that property a¤ect the outcome of ?scal poli- cies? We address this issue with a two country ?two period model, where both asymmetric and symmetric productivity shocks may hit the countries. We show that perfect (costless) labour mobility is not necessarily welfare improv- ing, since it prevents the national ?scal authorities from pursuing indepen- dent policies, opening the way to a coordination problem between them, which is particularly relevant when the two countries di¤er for their intertemporal preferences. With symmetric shocks, the federal ?scal policy can improve welfare over national policies by playing a coordinating role. With asymmet- ric shocks, the federal ?scal policy allows both countries to reach a higher productive e¢ ciency; to do that, the federal government must be endowed with a federal budget, playing a stronger role than plain coordination between countries. Length: 37 Creation-Date: 2014-11 File-URL: http://dipartimenti.unicatt.it/economia-finanza-def20.pdf File-Format: Application/pdf File-Function: First version, 2014 Number: def20 Classification-JEL: E62, H77. Keywords: currency union, labor mobility, ?scal policy, federation Handle: RePEc:ctc:serie1:def20