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An important question in the process of European integration concerns the best institutional level for stabilization policies. The theory of fiscal federalism gives criteria for evaluating if fiscal stabilization policies should take place on a centralized or on a decentralized level. This paper firstly discusses the usefulness of such policies. It reaches the conclusion that fiscal stabilization polices are in general not the adequate way of responding to shocks. However, since fiscal stabilization policies appear to be unavoidable for political reasons, the paper secondly discusses on which institutional level such policies should be located. Decentralized fiscal stabilization policies are preferable because they are disciplined more by market forces.

Exports and Imports --- Macroeconomics --- Public Finance --- Fiscal Policy --- Financial Aspects of Economic Integration --- Current Account Adjustment --- Short-term Capital Movements --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- International Monetary Arrangements and Institutions --- International economics --- Monetary unions --- Fiscal policy --- Fiscal federalism --- Fiscal stimulus --- Adjustment process --- Economic integration --- Balance of payments --- United States