Fiscal redistribution in the European Union and the enlargement

Abstract

In this article, fiscal redistribution in the European Union (EU) of 15 member states and the enlarged EU is analyzed. Specifically, net fiscal transfers between EU member states are analyzed, i.e. which countries are net beneficiaries, which are net contributors and what factors affect countries' net fiscal balances. The results show that, at present, fiscal transfers among EU member states are partly explained by differences in countries' relative economic prosperity and partly by institutional features that systematically favor smaller EU member states. Small member states can use their overrepresentation in the Council votes to obtain more benefits than their level of economic development alone would justify. If the pre-enlargement level of redistribution is extended to include the new member states, the net costs could amount to 60 billion euros. This means that the net fiscal balance of the current member states would decrease significantly. Furthermore, the Treaty of Nice does not change the malapportionment of Council votes and European Parliament seats, which gives an advantage to small member states in bargaining for transfers