TY - BOOK ID - 135510066 TI - Reducing Risk While Sharing It: A Fiscal Recipe for The EU at the Time of COVID-19 AU - Batini, Nicoletta. AU - Lamperti, Francesco. AU - Roventini, Andrea. PY - 2020 SN - 1513556622 PB - Washington, D.C. : International Monetary Fund, DB - UniCat KW - Italy KW - Finance: General KW - Financial Risk Management KW - Macroeconomics KW - Public Finance KW - Diseases: Contagious KW - Structure and Scope of Government: General KW - State and Local Government KW - Intergovernmental Relations: General KW - Governmental Loans, Loan Guarantees, Credits, and Grants KW - Fiscal Policy KW - Financial Crises KW - Debt KW - Debt Management KW - Sovereign Debt KW - General Financial Markets: Government Policy and Regulation KW - Health Behavior KW - Economic & financial crises & disasters KW - Public finance & taxation KW - Finance KW - Infectious & contagious diseases KW - Fiscal union KW - Financial crises KW - Public debt KW - Moral hazard KW - COVID-19 KW - Fiscal policy KW - Debts, Public KW - Financial risk management KW - Communicable diseases KW - Covid-19 UR - https://www.unicat.be/uniCat?func=search&query=sysid:135510066 AB - The COVID-19 lockdowns have brought about the need of large fiscal responses in all European countries. However, countries across Europe are differently equipped to respond to the shock due to differences in economic conditions and fiscal space. We build on the model by Berger et al. (2019) to compare gains from alternative mechanisms of EU fiscal integration in the presence of moral hazard. We show that any EU response strategy to the COVID-19 crisis excluding mutual financial support to member countries lacks credibility. Some form of fiscal risk sharing is indeed better than none, especially in presence of increasing sovereign default risk of some EU member countries. The moral hazard created by risk sharing can be hedged by introducing some form of fiscal delegation to Brussels. The desirable level of delegation, however, depends on its costs. When these are low, risk sharing and delegation are substitutes and it is optimal to opt for high delegation and low risk sharing. On the contrary, when delegation costs are high, centralization and risk sharing are complements and both are needed. Proposed arrangements at the EU level in response to the COVID-19 shock seem to reflect these basic insights by rotating around a combination of fiscal risk sharing and delegation in the form of fiscal spending conditionality. ER -