Is Fiscal Federalism Different in the European Union? A Comparative Analysis Through the Allocation Function

Abstract

A political-economic model largely influenced by the monetarist school inspires European Economic and Monetary Union (EMU). Accordingly, neither income redistribution nor resource allocation is the cornerstone of economic policy mix. That role is reserved to the stabilisation function. Among those scholars who discuss whether the EU is comparable to existing cases of conventional fiscal federalism, the analysis is frequently concentrated on allocation and redistribution. Despite macroeconomic stabilisation is the key aspect of EMU, the paper undergoes a comparative analysis between the European Union (EU) and five mature federations (United States, Canada, Australia, Germany, and Switzerland) as far as resource allocation is concerned. It first surveys the operation of the allocation function in these countries, concluding that there are remarkable differences when the countries under examination are measured within a centralisation/decentralisation continuum. Resource allocation is subsequently reviewed in the context of EMU to capture convergences and divergences with the federations examined - and to what extent do convergent aspects contribute to put a label on the EU in terms of fiscal federalism. The awareness that the discussion is sometimes plagued with conceptual oversight - the confusion between the desirability and feasibility of fiscal federalism in the European integration context - paves the way to the empirical dimension. The paper concludes with an input from statistical data assessing to what extent inter-state solidarity exists (or is absent) in the EU.