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Fiscal Capacity For Euro Area – Towards A Bigger Eu Budget?

Author

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  • Tomasz Rosiak

    (University of Warsaw)

Abstract

The European Union has recently implemented one of the biggest reform packages in its history. Developed solutions are designed to (1) strengthen EU’s resilience to shocks and (2) improve its shock absorption capabilities. It seems that so far the stress was mainly placed on the first objective. Among the reforms which satisfied the second objective the European Stability Mechanism (ESM) plays the key role. However, this is not the only solution. The European Union is also developing a fiscal capacity for the European Monetary Union (EMU). On the base of a subject literature study, I have developed a model with boundary conditions of fiscal federalism (FF), which then was compared to macroeconomic data for the EU. The results of my findings show that the European Union, and especially the euro area, share a lot of characteristics typical for fiscal federalism. The biggest difference between EMU’s structure and FF model is insufficient size of central budget. As a result, the euro area is not equipped with stabilization tools which could act on the very early stage of a crisis. From this point of view, implementation of fiscal capacity in the form of central budget could fill this gap. However, it could bring further fragmentation of economic integration process in the EU, which probably would not positively contribute towards the stability in the political sphere.

Suggested Citation

  • Tomasz Rosiak, 2015. "Fiscal Capacity For Euro Area – Towards A Bigger Eu Budget?," Oeconomia Copernicana, Institute of Economic Research, vol. 6(3), pages 45-60, September.
    • Handle: RePEc:pes:ieroec:v:6:y:2015:i:3:p:45-60
    DOI: 10.12775/OeC.2015.020
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    References listed on IDEAS

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    1. Roger H. Gordon, 1983. "An Optimal Taxation Approach to Fiscal Federalism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(4), pages 567-586.
    2. Wallace E. Oates & Wallace E. Oates, 2004. "An Essay on Fiscal Federalism," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 22, pages 384-414, Edward Elgar Publishing.
    3. Antonio Fatás, 1998. "Does EMU need a fiscal federation?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 13(26), pages 164-203.
    4. Hans Vollaard, 2014. "Explaining European Disintegration," Journal of Common Market Studies, Wiley Blackwell, vol. 52(5), pages 1142-1159, September.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    fiscal capacity; fiscal federalism; European Union; euro area; EU budget;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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