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EU Regional Policy: Vertical Fiscal Externalities and Matching Grants

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  • Robert Fenge
  • Matthias Wrede

Abstract

Although decision processes at the EU level are highly complex and often require unanimity, explicit side payments among member states are unknown. However, logrolling and redistributive policies are substitutes. This paper considers the EU regional policy as a substitute for explicit side payments and asks – from a normative and a positive point of view – why matching grants instead of unconditional grants are used although at first sight regional policy is a national and not a union-wide task. It argues that the EU system of own resources creates positive vertical fiscal externalities. Hence, matching grants are part of an efficient grant system and, in so far as bargaining in EU bodies is efficient, matching grants are the natural outcome.

Suggested Citation

  • Robert Fenge & Matthias Wrede, 2004. "EU Regional Policy: Vertical Fiscal Externalities and Matching Grants," CESifo Working Paper Series 1146, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1146
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    References listed on IDEAS

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    1. Ricahrd E. Baldwin & Joseph F. Francois & Richard Portes, 1997. "The costs and benefits of eastern enlargement: the impact on the EU and central Europe," Economic Policy, CEPR;CES;MSH, vol. 12(24), pages 125-176, April.
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    3. Alicia H. Munnell, 1990. "Why has productivity growth declined? Productivity and public investment," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
    4. Alicia H. Munnell, 1992. "Policy Watch: Infrastructure Investment and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 189-198, Fall.
    5. Morrison, Catherine J & Schwartz, Amy Ellen, 1996. "State Infrastructure and Productive Performance," American Economic Review, American Economic Association, vol. 86(5), pages 1095-1111, December.
    6. John G. Fernald, 1999. "Roads to Prosperity? Assessing the Link between Public Capital and Productivity," American Economic Review, American Economic Association, vol. 89(3), pages 619-638, June.
    7. Heinemann, Friedrich, 1999. "Der Kompensationsfonds: Eine neue Finanzverfassung für die EU der 21+," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1949 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 79(5), pages 293-299.
    8. Robin Boadway & Michael Keen, 1996. "Efficiency and the optimal direction of federal-state transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(2), pages 137-155, May.
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    Cited by:

    1. Robert Fenge & Volker Meier, 2006. "Subsidies for Wages and Infrastructure: How to Restrain Undesired Immigration," CESifo Working Paper Series 1741, CESifo Group Munich.
    2. Corinna Ahlfeld, 2010. "Reputation Sells -Compensation Payments in the Political Sphere," Departmental Discussion Papers 145, University of Goettingen, Department of Economics.
    3. Arthur Caplan & Emilson Silva, 2011. "Impure public goods, matching grant rates and income redistribution in a federation with decentralized leadership and imperfect labor mobility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(3), pages 322-336, June.
    4. Cornelius Bähr, 2008. "How does Sub-National Autonomy Affect the Effectiveness of Structural Funds?," Kyklos, Wiley Blackwell, vol. 61(1), pages 3-18, February.
    5. Katarina Elofsson, 2011. "Delegation of Decision-Rights for Wetlands," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(2), pages 285-303, October.

    More about this item

    Keywords

    European economics; regional policy; intergovernmental grants; side payments; vertical fiscal externalities;

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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