The European Union: a case of ‘unconventional’ fiscal dederalism?

• Author(s): Vila Maior, Paulo
• Date: 2004
• Persistent ID: http://hdl.handle.net/10284/1422
• Origin: Repositório Institucional - Universidade Fernando Pessoa
• Subject(s): Economic and Monetary Union; Fiscal federalism; Redistribution function
• Document Type: Book part
• Language: English
• Contributor(s): yes; Repositório Institucional da Universidade Fernando Pessoa

Description

Annual Conference and 11th. Research Conference, ‘Exchanging Ideas on Europe 2006 - Visions of Europe: Key Problems, New Trajectories’, 36, Limerick (Ireland), 2006.

There has been a lively debate among scholars about the feasibility and desirability of fiscal federalism in the European Union (EU). The paper addresses the question of whether ‘conventional fiscal federalism’ is feasible in the EU, considering the distinctiveness of European integration and the political-economic template of Economic and Monetary Union (EMU). It is an attempt to bridge the gap between economics and political science by adding the political conditions that might create difficulties to economics’ rationale. The paper highlights how fiscal federalism is a multi-faceted concept embracing both a centralisation and a decentralisation outcome. Borrowing the Musgravian classification of allocation-equity-stabilisation, the EU is examined as far as redistribution is concerned. The aim is to conclude whether centralisation or decentralisation is the prevailing outcome. For that purpose, the EU is compared with five mature federations on two issues: the depth of regional asymmetries; and the extent to which regional inequalities are redressed through redistribution. Considering that in the EU: i) the current distribution of fiscal competences is favourable to member states; ii) decentralisation is the outcome for the redistribution function; iii) despite monetary policy is the main tool for macroeconomic stabilisation, and this is a policy arena where centralisation prevails; iv) the diminished scope for inter-state solidarity averts more centralisation in redistribution; and v) national governments’ absent political willingness to increase the EU budget; all this suggests that centralised, ‘conventional fiscal federalism’ is ruled out as a feasible solution for the EU. Notwithstanding this doesn’t imply that fiscal federalism is absent from the EU. A distinct, decentralised modality of fiscal federalism already exists, coping with the ‘sui generis’ nature of European integration.