Cross-border flows operated through the EU budget: an overview

The budget of the European Union (EU) amounts to around 1% of Gross Domestic Product (GDP) of the EU. Although financed by national contributions, only a part of expenditure flows across Member States. According to our estimates, yearly cross-border flows operated through the EU budget amount to a quarter of a percentage point of the EU’s GDP. To provide a benchmark, ‘cross-border’ flows between US States are calculated using the same method. These are much larger in normal times and incomparably larger in deep recessions. They amounted to 1.5% of US GDP on average between 1980 and 2005, and increased to 9% over 2009 and 2010. Importantly, the post-crisis increase (2009-10) of net inflows was financed entirely by borrowing at the federal level. During normal times (1980-2005), instead, it was the size and structure of the federal budget to determine the magnitude of cross-border flows. These happen automatically and almost invisibly through the federal tax and spending system. They are not subject to intense interstate negotiations but predominantly stem from a direct fiscal relationship between the citizen – regardless of its residence – and the federal layer of government. While keeping in mind the limitations of such comparisons, the evidence gathered in this paper suggests that – contrary to popular perception - cross-border flows operated through the EU budget are overall fairly small in both absolute and relative terms. Notions such as 'fairness' and 'juste retour' often used in the context of past intense EU budgetary negotiations could therefore benefit from being framed in a broader, arguably more relevant, perspective.