Equity and the EC Budget; a Pooled Cross-Section Time Series Analysis

Abstract

This paper presents an empirical analysis of the EC budget over the period 1985-89. It begins from the premise that economic variables influence both a member state's contributions to the finance of the budget and its receipts under the various spending programmes. We examine this hypothesis using data from 5 years relating to all EC members. A regression model is fitted in order to establish whether (and to what degree) a member state's contributions to the budget and the receipts it can expect under the main budget heads, are likely to increase with the country's income. The principal findings are that a country's GDP is an accurate guide to the contributions it can expect to make but a much less reliable guide to receipts. The result is that net contributions are not strongly correlated with GDP. We find also that economic indicators such as unemployment rates and the proportion of the population employed in agriculture have limited additional explanatory power. The paper extends the analysis by exploring how the position might have changed had recent moves to switch more EC spending from agricultural price support to structural measures taken place earlier. This simulation assumes that the structural part of the budget had been expanded while the agricultural price support remained the same, the extra spending being financed by a proportionate increase in contributions. It emerges that such measures would have made a member's net contributions slightly more sensitive to GDP. But it would not have been sufficient to give the budget a significant role in terms of redistributing income from poorer member states to richer ones.