We analyze causes and consequences of a monetary unification among countries with different institutional quality. Countries with stronger institutions choose a more productive policy, resulting in a stronger currency and lower taxes. Governments under weaker institutions prefer more spending...

There is evidence for a strong demand for safety, both steady and inelastic. A sudden loss of safe assets played a key role in the financial crisis and European sovereign debt crisis. I show that a common fiscal policy can benefit all member states of a monetary union by offering a more...

We analyze the political economy causes and consequences of a monetary unification among countries with different institutional quality. Before a common currency, countries with stronger institutions have more efficient public spending and lower taxes, leading to better productive incentives and...