Labor mobility is commonly taken as a property of an optimal currency area. But how does that property affect the outcome of fiscal policies? 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...

A general feature of national fiscal systems is that they provide buffers against regional fluctuations in output and employment by redistributing income between the different regions of a country. Recent literature in connection with European monetary integration has stressed the insurance...