Seigniorage, Taxation and Myopia in EMU

We examine fiscal policy coordination in a two-country world with two types of asymmetries. The first type of asymmetry is a difference in the efficiency of taxation systems, the second is a varying degree of myopia as represented by discount rates. We examine the conditions under which cooperation is beneficial for both countries and we examine how asymmetries affect the loss inflicted by discretion. Our results show that if asymmetries are too great, EMU has poor welfare properties.