American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Limits to Partial Banking Unions: A Political Economy Approach
American Economic Review
vol. 108,
no. 4-5, April 2018
(pp. 1187–1213)
Abstract
This paper studies the welfare effects of a "partial banking union" in which cross-country transfers for bailouts are set at the supranational level, but policymakers in member countries decide the distribution of funds. This allows the self-interested policymakers to extract rents in the bailout process. In equilibrium, such a banking union can actually lower the welfare of citizens in the country receiving transfers compared to the autarky case, as the receiving country must increase its share of the overall burden of the bailout, in order to compensate for the rent-seeking distortion. Supranational fiscal rules are ineffective at reversing this result.Citation
Foarta, Dana. 2018. "The Limits to Partial Banking Unions: A Political Economy Approach." American Economic Review, 108 (4-5): 1187–1213. DOI: 10.1257/aer.20141388Additional Materials
JEL Classification
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E44 Financial Markets and the Macroeconomy
- E61 Policy Objectives; Policy Designs and Consistency; Policy Coordination
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation