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EU306 lecture slides5 - European Economic and Monetary...

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European Economic and Monetary Integration EXAM DATE Exam: April 8 Time: 6 pm – 8 pm Place: to be announced
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Presentation Dates MAY 20 (section 2 & 3) / 21 (section 1): - Competition Policy - Social Policy - Industrial Policy - Taxation Policy MAY 27 /28: - Environmental Policy - Energy Policy - Transportation Policy Group Papers Due: May 29 by 17.00
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Points to Remember for Presentation Content: - Does the presentation address the necessary points? - Are the points clear? Organization: - Is the presentation well prepared? - Is the level of treatment appropriate? (Not too detailed or too general) - Is the presentation easy to follow with smooth continuity? Delivery: - Is the presenter energetic and enthusiastic? - Is the presentation well practiced? - Presentation should have very little reading from notes - Does the speaker have clear, good volume with no mumbling? - Is the presentation on time? (Without need to go over time)
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Points to Remember for Presentation (cont.) Format: - Are the presentation slides large enough to read without too much crowding on one slide? - Are the visuals sufficient? - Are appropriate graphics used? - Any misspellings, poor grammar or misuse of words? Overall Excellence: - Out of all of the presentations you have seen today, was this presentation among the best, one of the good, one of the average or one of the bad presentations?
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Different Fiscal Systems and the Seigniorage Problem Countries have different fiscal systems This leads countries to use different debt and monetary financing of the government budget deficit In a monetary union countries will be constrained in the way they finance their budget deficits
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Theory of Optimal Public Finance Rational governments will use different sources of revenue so that the marginal cost of raising revenue through different means is equalized If the marginal cost of raising revenue by increasing taxes exceeds the marginal cost of raising revenues inflation (seigniorage) – it will be optimal to reduce taxes and to increase inflation Countries will have different optimal inflation rates Generally countries with an underdeveloped tax system will find it more advantageous to raise revenues by inflation (seigniorage)
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Different Fiscal Systems and the Seigniorage Problem Main Point Less Developed Countries that join a monetary union with more developed countries that have a low rate of inflation will also have to lower inflation - This means they will have to increase taxes Leads to a loss of welfare Seigniorage Revenues (as % of GDP) 1976-85 1986-90 1993 German y 0,2 0,6 0,5 Greece 3,4 1,5 0,7 Italy 2,6 0,7 0,5
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What About Symmetric Shocks? Can France and Germany deal with this negative shock in a monetary union?
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Symmetric Shocks France and Germany can deal with a negative shock in a monetary union because monetary policy is centralized in the hands of the European Central Bank - One interest rate for both countries due to ECB - If ECB lowers the interest rate – it stimulates aggregate demand
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