Incomplete Integration and Contagion of Debt Distress in Economic Unions
This paper compares different fiscal integration schemes on the basis of their ability to finance public investments and resilience to debt distress and contagion. Complete integration schemes, where a central authority chooses the level of public...
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2014/12/20464338/incomplete-integration-contagion-debt-distress-economic-unions http://hdl.handle.net/10986/20700 |
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okr-10986-207002021-04-23T14:03:59Z Incomplete Integration and Contagion of Debt Distress in Economic Unions Karayalcin, Cem Onder, Harun ADVANCED ECONOMIES AMORTIZATION AMOUNT OF LOAN ASSETS BENEFICIARIES BORROWER BUDGET CONSTRAINT BUDGET CONSTRAINTS BUSINESS CYCLE CAPITAL ACCUMULATION CENTRALIZATION CLOSED ECONOMY CONFLICT OF INTEREST CONNECTIVITY CONSUMPTION SMOOTHING CONTINGENT CLAIM CREDITORS DEBT DEBT CONTRACT DEBT CONTRACTS DEBT ISSUANCE DEBT LEVEL DEBT LEVELS DEBT OBLIGATIONS DEBT REPAYMENT DEBT STOCK DECISION MAKING DEFAULT RISK DEVELOPMENT POLICY ECONOMIC GROWTH ECONOMIC INTEGRATION ECONOMIC OUTLOOK ECONOMIC RESEARCH ELASTICITY EQUILIBRIUM EXPENDITURES EXTERNAL DEBT EXTERNALITIES EXTERNALITY FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL STABILITY FISCAL INTEGRATION FIXED SHARE FORECASTS FOREIGN CREDITORS FOREIGN DEBT FOREIGN FUNDS FOREIGN LENDERS FULL EMPLOYMENT FULL REPAYMENT FUNCTIONAL FORMS FUTURE RESEARCH GLOBAL ECONOMICS GLOBAL FINANCIAL MARKETS GROWTH RATES HOUSEHOLDS INCENTIVE CONSTRAINTS INCOME INCOME LEVELS INCOME TAX INCOMES INDEBTEDNESS INEQUALITY INFRASTRUCTURE INVESTMENT INFRASTRUCTURE INVESTMENTS INFRASTRUCTURE PROJECTS INITIAL DEBT INTEREST PAYMENT INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKET INTERNATIONAL CAPITAL MARKETS INTERNATIONAL DEBT INTERNATIONAL ECONOMICS INTERNATIONAL MARKETS INVESTING INVESTMENT BEHAVIOR INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT POLICIES INVESTMENT PURPOSES INVESTMENT STRATEGY JURISDICTION JURISDICTIONS LENDERS LEVEL OF CREDIT LEVEL OF DEBT LEVEL OF INDEBTEDNESS LEVELS OF DEBT LEVERAGE LOAN LOCAL GOVERNMENTS MACROECONOMICS MANDATE MARKET MECHANISMS MONETARY FUND MONETARY POLICY MORTGAGE NASH EQUILIBRIUM NATIONAL INVESTMENT NEGATIVE SHOCK NEGATIVE SHOCKS OPTIMAL INVESTMENT OPTIMIZATION ORIGINAL DEBT OUTPUT PARTIAL DEFAULT PAYOFFS POLITICAL ECONOMY PRIVATE CAPITAL PRODUCTION COSTS PRODUCTION FUNCTION PRODUCTIVITY PUBLIC DEBT PUBLIC FINANCE PUBLIC GOOD PUBLIC INVESTMENT PUBLIC INVESTMENTS RATE OF RETURN RECESSION RENEGOTIATIONS REPAYMENT RETURN RETURN ON INVESTMENTS RETURNS RETURNS TO SCALE SAVINGS SMALL ECONOMY SOVEREIGN DEBT SOVEREIGN DEFAULTS SOVEREIGN RISK STRUCTURAL PROBLEMS SUPPLY SHOCK SUPPLY SHOCKS TAX TAX REVENUES TOTAL DEBT TOTAL FACTOR PRODUCTIVITY TOTAL OUTPUT TRANSPORTATION INFRASTRUCTURE TREASURY UNION UNIONS UTILITY FUNCTIONS WEALTH WILLINGNESS TO PAY This paper compares different fiscal integration schemes on the basis of their ability to finance public investments and resilience to debt distress and contagion. Complete integration schemes, where a central authority chooses the level of public investments with productivity-enhancing externalities across different jurisdictions, are shown to be superior to incomplete integration schemes, where member governments choose public investments unilaterally. As a result, equilibrium income is greater for citizens of member states under a complete integration scheme. Moreover, complete integration schemes are shown to be more resilient to idiosyncratic shocks and more effective in limiting contagion of debt distress. This is mainly because the central authority can credibly borrow more without risking default than member states taken together can and it can "transfer resilience" across them if needed. These findings inform discussions on structural aspects of secular stagnation in Europe by emphasizing a potential challenge in the institutional design of fiscal responsibilities. 2014-12-12T21:39:45Z 2014-12-12T21:39:45Z 2014-12 http://documents.worldbank.org/curated/en/2014/12/20464338/incomplete-integration-contagion-debt-distress-economic-unions http://hdl.handle.net/10986/20700 English en_US Policy Research Working Paper;No. 7129 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research |
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Digital Repository |
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Foreign Institution |
| institution |
Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English en_US |
| topic |
ADVANCED ECONOMIES AMORTIZATION AMOUNT OF LOAN ASSETS BENEFICIARIES BORROWER BUDGET CONSTRAINT BUDGET CONSTRAINTS BUSINESS CYCLE CAPITAL ACCUMULATION CENTRALIZATION CLOSED ECONOMY CONFLICT OF INTEREST CONNECTIVITY CONSUMPTION SMOOTHING CONTINGENT CLAIM CREDITORS DEBT DEBT CONTRACT DEBT CONTRACTS DEBT ISSUANCE DEBT LEVEL DEBT LEVELS DEBT OBLIGATIONS DEBT REPAYMENT DEBT STOCK DECISION MAKING DEFAULT RISK DEVELOPMENT POLICY ECONOMIC GROWTH ECONOMIC INTEGRATION ECONOMIC OUTLOOK ECONOMIC RESEARCH ELASTICITY EQUILIBRIUM EXPENDITURES EXTERNAL DEBT EXTERNALITIES EXTERNALITY FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL STABILITY FISCAL INTEGRATION FIXED SHARE FORECASTS FOREIGN CREDITORS FOREIGN DEBT FOREIGN FUNDS FOREIGN LENDERS FULL EMPLOYMENT FULL REPAYMENT FUNCTIONAL FORMS FUTURE RESEARCH GLOBAL ECONOMICS GLOBAL FINANCIAL MARKETS GROWTH RATES HOUSEHOLDS INCENTIVE CONSTRAINTS INCOME INCOME LEVELS INCOME TAX INCOMES INDEBTEDNESS INEQUALITY INFRASTRUCTURE INVESTMENT INFRASTRUCTURE INVESTMENTS INFRASTRUCTURE PROJECTS INITIAL DEBT INTEREST PAYMENT INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKET INTERNATIONAL CAPITAL MARKETS INTERNATIONAL DEBT INTERNATIONAL ECONOMICS INTERNATIONAL MARKETS INVESTING INVESTMENT BEHAVIOR INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT POLICIES INVESTMENT PURPOSES INVESTMENT STRATEGY JURISDICTION JURISDICTIONS LENDERS LEVEL OF CREDIT LEVEL OF DEBT LEVEL OF INDEBTEDNESS LEVELS OF DEBT LEVERAGE LOAN LOCAL GOVERNMENTS MACROECONOMICS MANDATE MARKET MECHANISMS MONETARY FUND MONETARY POLICY MORTGAGE NASH EQUILIBRIUM NATIONAL INVESTMENT NEGATIVE SHOCK NEGATIVE SHOCKS OPTIMAL INVESTMENT OPTIMIZATION ORIGINAL DEBT OUTPUT PARTIAL DEFAULT PAYOFFS POLITICAL ECONOMY PRIVATE CAPITAL PRODUCTION COSTS PRODUCTION FUNCTION PRODUCTIVITY PUBLIC DEBT PUBLIC FINANCE PUBLIC GOOD PUBLIC INVESTMENT PUBLIC INVESTMENTS RATE OF RETURN RECESSION RENEGOTIATIONS REPAYMENT RETURN RETURN ON INVESTMENTS RETURNS RETURNS TO SCALE SAVINGS SMALL ECONOMY SOVEREIGN DEBT SOVEREIGN DEFAULTS SOVEREIGN RISK STRUCTURAL PROBLEMS SUPPLY SHOCK SUPPLY SHOCKS TAX TAX REVENUES TOTAL DEBT TOTAL FACTOR PRODUCTIVITY TOTAL OUTPUT TRANSPORTATION INFRASTRUCTURE TREASURY UNION UNIONS UTILITY FUNCTIONS WEALTH WILLINGNESS TO PAY |
| spellingShingle |
ADVANCED ECONOMIES AMORTIZATION AMOUNT OF LOAN ASSETS BENEFICIARIES BORROWER BUDGET CONSTRAINT BUDGET CONSTRAINTS BUSINESS CYCLE CAPITAL ACCUMULATION CENTRALIZATION CLOSED ECONOMY CONFLICT OF INTEREST CONNECTIVITY CONSUMPTION SMOOTHING CONTINGENT CLAIM CREDITORS DEBT DEBT CONTRACT DEBT CONTRACTS DEBT ISSUANCE DEBT LEVEL DEBT LEVELS DEBT OBLIGATIONS DEBT REPAYMENT DEBT STOCK DECISION MAKING DEFAULT RISK DEVELOPMENT POLICY ECONOMIC GROWTH ECONOMIC INTEGRATION ECONOMIC OUTLOOK ECONOMIC RESEARCH ELASTICITY EQUILIBRIUM EXPENDITURES EXTERNAL DEBT EXTERNALITIES EXTERNALITY FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL MARKETS FINANCIAL STABILITY FISCAL INTEGRATION FIXED SHARE FORECASTS FOREIGN CREDITORS FOREIGN DEBT FOREIGN FUNDS FOREIGN LENDERS FULL EMPLOYMENT FULL REPAYMENT FUNCTIONAL FORMS FUTURE RESEARCH GLOBAL ECONOMICS GLOBAL FINANCIAL MARKETS GROWTH RATES HOUSEHOLDS INCENTIVE CONSTRAINTS INCOME INCOME LEVELS INCOME TAX INCOMES INDEBTEDNESS INEQUALITY INFRASTRUCTURE INVESTMENT INFRASTRUCTURE INVESTMENTS INFRASTRUCTURE PROJECTS INITIAL DEBT INTEREST PAYMENT INTEREST RATE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKET INTERNATIONAL CAPITAL MARKETS INTERNATIONAL DEBT INTERNATIONAL ECONOMICS INTERNATIONAL MARKETS INVESTING INVESTMENT BEHAVIOR INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT POLICIES INVESTMENT PURPOSES INVESTMENT STRATEGY JURISDICTION JURISDICTIONS LENDERS LEVEL OF CREDIT LEVEL OF DEBT LEVEL OF INDEBTEDNESS LEVELS OF DEBT LEVERAGE LOAN LOCAL GOVERNMENTS MACROECONOMICS MANDATE MARKET MECHANISMS MONETARY FUND MONETARY POLICY MORTGAGE NASH EQUILIBRIUM NATIONAL INVESTMENT NEGATIVE SHOCK NEGATIVE SHOCKS OPTIMAL INVESTMENT OPTIMIZATION ORIGINAL DEBT OUTPUT PARTIAL DEFAULT PAYOFFS POLITICAL ECONOMY PRIVATE CAPITAL PRODUCTION COSTS PRODUCTION FUNCTION PRODUCTIVITY PUBLIC DEBT PUBLIC FINANCE PUBLIC GOOD PUBLIC INVESTMENT PUBLIC INVESTMENTS RATE OF RETURN RECESSION RENEGOTIATIONS REPAYMENT RETURN RETURN ON INVESTMENTS RETURNS RETURNS TO SCALE SAVINGS SMALL ECONOMY SOVEREIGN DEBT SOVEREIGN DEFAULTS SOVEREIGN RISK STRUCTURAL PROBLEMS SUPPLY SHOCK SUPPLY SHOCKS TAX TAX REVENUES TOTAL DEBT TOTAL FACTOR PRODUCTIVITY TOTAL OUTPUT TRANSPORTATION INFRASTRUCTURE TREASURY UNION UNIONS UTILITY FUNCTIONS WEALTH WILLINGNESS TO PAY Karayalcin, Cem Onder, Harun Incomplete Integration and Contagion of Debt Distress in Economic Unions |
| relation |
Policy Research Working Paper;No. 7129 |
| description |
This paper compares different fiscal
integration schemes on the basis of their ability to finance
public investments and resilience to debt distress and
contagion. Complete integration schemes, where a central
authority chooses the level of public investments with
productivity-enhancing externalities across different
jurisdictions, are shown to be superior to incomplete
integration schemes, where member governments choose public
investments unilaterally. As a result, equilibrium income is
greater for citizens of member states under a complete
integration scheme. Moreover, complete integration schemes
are shown to be more resilient to idiosyncratic shocks and
more effective in limiting contagion of debt distress. This
is mainly because the central authority can credibly borrow
more without risking default than member states taken
together can and it can "transfer resilience"
across them if needed. These findings inform discussions on
structural aspects of secular stagnation in Europe by
emphasizing a potential challenge in the institutional
design of fiscal responsibilities. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Karayalcin, Cem Onder, Harun |
| author_facet |
Karayalcin, Cem Onder, Harun |
| author_sort |
Karayalcin, Cem |
| title |
Incomplete Integration and Contagion of Debt Distress in Economic Unions |
| title_short |
Incomplete Integration and Contagion of Debt Distress in Economic Unions |
| title_full |
Incomplete Integration and Contagion of Debt Distress in Economic Unions |
| title_fullStr |
Incomplete Integration and Contagion of Debt Distress in Economic Unions |
| title_full_unstemmed |
Incomplete Integration and Contagion of Debt Distress in Economic Unions |
| title_sort |
incomplete integration and contagion of debt distress in economic unions |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2014/12/20464338/incomplete-integration-contagion-debt-distress-economic-unions http://hdl.handle.net/10986/20700 |
| _version_ |
1764447010973286400 |