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Fiscal capacity for euro area- towards a bigger EU budget?

Author

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  • Tomasz Rosiak

    (Warsaw University)

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 stress was mainly placed on the first objective. Among the reforms, which satisfied the second objective, the European Stability Mechanism (ESM) plays a key role. However, this is not the only solution. The European Union is also developing a fiscal capacity for the euro area. On the base of a subject literature study, I have developed a model with boundary conditions of fiscal federalism, which then was compared to macroeconomic data for the EU. Results of my findings show that the European Union, and especially the euro area, share a lot of characteristics typical for fiscal federalism. From this point of view, a budget for the euro area seems to be the best form of fiscal capacity. 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?," Working Papers 93/2015, Institute of Economic Research, revised Apr 2015.
    • Handle: RePEc:pes:wpaper:2015:no93
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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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