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

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  • Angel de la Fuente
  • Rafael Doménech
  • Vasja Rant

Abstract

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.

Suggested Citation

  • Angel de la Fuente & Rafael Doménech & Vasja Rant, 2010. "Addressing the Net Balances Problem as a Prerequisite for EU Budget Reform: A Proposal," CESifo Economic Studies, CESifo Group, vol. 56(2), pages 221-250, June.
    • Handle: RePEc:oup:cesifo:v:56:y:2010:i:2:p:221-250
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifp013
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    References listed on IDEAS

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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, June.
    2. Sapir, Andre & Aghion, Philippe & Bertola, Giuseppe & Hellwig, Martin & Pisani-Ferry, Jean & Rosati, Dariusz & Vinals, Jose & Wallace, Helen, 2004. "An Agenda for a Growing Europe: The Sapir Report," OUP Catalogue, Oxford University Press, number 9780199271498.
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    3. Callan, Tim ed. & Barrett, Alan & Goggin, Jean & Gorecki, Paul K. & Keane, Claire & Kearney, Ide & Matthews, Alan & Walsh, John R., 2009. "Budget Perspectives 2010," Research Series, Economic and Social Research Institute (ESRI), number RS12.
    4. repec:hal:wpspec:info:hdl:2441/10059 is not listed on IDEAS
    5. Iain Begg & Henrik Enderlein & Jacques Le Cacheux & Mojmir Mrak, 2008. "Financing of the European Union Budget," SciencePo Working papers Main hal-03459814, HAL.
    6. repec:spo:wpmain:info:hdl:2441/10059 is not listed on IDEAS
    7. Rosella Nicolini, 2008. "Agglomeration and inequality across space: What can we learn from the European experience?," Working Papers wpdea0809, Department of Applied Economics at Universitat Autonoma of Barcelona.
    8. Indhira Santos & Susanne Neheider, 2009. "Reframing the EU budget- decision-making process," Working Papers 306, Bruegel.
    9. van der Hoek, M. Peter, 2011. "European Union Finances," MPRA Paper 89953, University Library of Munich, Germany, revised 2011.

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    JEL classification:

    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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