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Addressing the Net Balances Problem as a Prerequisite for EU Budget Reform: A Proposal

  • Angel de la Fuente
  • Rafael Doménech
  • Vasja Rant

Conflict among member states regarding the distribution of net financial burdens has been allowed to contaminate the entire design of the EU budget with very negative consequences in terms of equity, efficiency and transparency. To get around this problem and pave the way for a substantive budget reform, we propose to decouple distributional negotiations from the rest of the budget process by linking member state net balances in a rigid manner to relative prosperity. This would be achieved through the introduction of a system of compensating horizontal transfers that would take to its logical conclusion the Commission's proposal for a generalized compensation mechanism. We discuss the impact of the proposed scheme on member states' incentives and illustrate its financial implications using revenue and expenditure projections for 2013 that are based on the current financial perspectives and own resources decision. (JEL code: H87) Copyright The Author 2009. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/cesifo/ifp013
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Article provided by CESifo in its journal CESifo Economic Studies.

Volume (Year): 56 (2010)
Issue (Month): 2 (June)
Pages: 221-250

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Handle: RePEc:oup:cesifo:v:56:y:2010:i:2:p:221-250
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  1. Angel de la Fuente & Rafael Doménech, 2001. "The Redistributive Effects of the EU Budget: An Analysis and Proposal for Reform," Journal of Common Market Studies, Wiley Blackwell, vol. 39(2), pages 307-330, 06.
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