The Fiscal Transfer Dilemma in a Monetary Union Shafik Hebous and Alfons J. Weichenrieder * April 2015 We illustrate the trade-off in designing a system of fiscal transfers (“fiscal capacity”) in a monetary union between members of different size. A system cannot guarantee symmetric treatment of members and simultaneously ensure a balanced budget. We compute hypothet- ical transfers for the Eurozone members from 2001 to 2012 to illustrate this trade-off. Keywords : fiscal union, asymmetric shock insurance, federal transfers, optimum currency area JEL Classification : H500, H600 * Shafik Hebous: Goethe University Frankfurt and CESifo, hebous@wiwi.uni-frankfurt.de. Alfons J. Weichenrieder: Goethe University Frankfurt, SAFE, WU Vienna, and CESifo, a.weichenrieder@em.uni- frankfurt.de. This paper is part of the research program of the Center “Sustainable Architecture for Finance in Europe” (S A F E). Project funding (#2014-11531) is gratefully acknowledged. 1