Abstract
A lack of structural reforms is often considered as a major problem in many member countries of EMU. This lack is arguably partly due to uncertainty about outcomes and a disregard for how policies spill over to other countries. Monetary union can reinforce this underprovision of structural reforms. Because centralization of structural policies is politically not feasible, I discuss subsidies for reforms and insurance against negative outcomes as alternative mechanisms that increase reform efforts. The paper derives the optimal use of those mechanisms and discusses their implementability.
Acknowledgement
I am grateful to the referee for constructive comments and suggestions.
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Article note
This article is part of the special issue “20 Years of European Monetary Union” published in the Journal of Economics and Statistics. Access to further articles of this special issue can be obtained at www.degruyter.com/journals/jbnst.
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