Fiscal convergence and prospects of a fiscal union in the European union -

Abstract

The European Union’s current ongoing economic crisis has caused the consideration by some European Union (EU) members to implement a fiscal union. A fiscal union would imply fiscal transfers which might help alleviate the effect of asymmetric shocks to the region. This thesis empirically tests for the possibility of a fiscal convergence already occurring in the EU by focusing on 2 key fiscal variables – general government debt (percentGDP) and general government deficit(percentGDP). This thesis is divided into 5 chapters. The first chapter introduces the EU, EMU, and provides a brief introduction. The second chapter discusses the conception of the EU and the level of economic integration. More specifically, it discusses monetary and fiscal policy in the EU, the consequences of a lack of a fiscal union, and provides a literature review. The third chapter presents the OCA model. The fourth chapter presents the results of the chosen tests and the last chapter provides a conclusion.