مدل فدرالیسم مالی: تحلیل تجزیه تغییرات در نقل و انتقالات بودجه درون اتحادیه اروپا

We use a stylized model of inter-governmental transfers to investigate the extent to which the post-Maastricht increase in the European Union budget, and the associated increase in net transfers among the member states, has been driven by the political deepening of the European Union. We find that only two-thirds of the increase in net transfers is attributable to the increased cohesion of the Union. The remainder is due to the entry of Austria, Finland, and Sweden and changes in the relative population of member states. We also find that the convergence in member states’ per capita incomes, measured in inflation-adjusted local currency, has been almost entirely offset by the devaluation of the currencies of poorer member states. Therefore, relative income considerations have played no role in the change of net transfers. The methodology introduced in this paper is of general applicability to a large number of federations.

The policies of the European Union, and in particular its agricultural and regional policies, lead to significant fiscal transfers between its member states.1 The level of net transfers to any member state is determined by a number of different factors. Some of these factors are specific to the member state, e.g., its per capita income, its population, and the degree to which economic activities in that country are covered by EU programs. Other factors are specific to the Union at large, e.g., the composition of the Union, the structure of the decision making process, and the distribution over the member states of population and per capita income. 2 Over the last decade, the European Union has experienced a substantial transformation. This transformation consisted of institutional changes (the “Maastricht” process), changes in membership (the accession of Austria, Finland, and Sweden), changes in relative per capita income of member states (poorer countries have grown more rapidly than wealthier countries), exchange rate realignments (the crisis in the European Monetary System), and changes in its demographic make-up (with the population of some member states growing faster than that of others). Each of these factors had an effect on the size of the EU budget and on the volume of transfers among member states. The net-effect has been an increase in the EU budget from 58.6 billion euros in 1992 to 80.7 euros in 1998. Of this amount, net transfers to or from member states equaled 28.3 billion euros in 1992 and 36.3 billion euros in 1998.3 There is a perception that this increase in transfers is due to the process of progressive deepening of the European Union. Such a perception implicitly ignores the fact that all the factors listed above also contribute to changes in the level of transfers. Therefore, there exists the possibility that the volume of transfers would have increased even in the absence of any political “deepening.” It is important to disentangle the contribution of changes in each aspect of the European Union, so as to determine to what extent, if any, the increase in net transfers is understated or overstated by ignoring the contributions of the other factors (and in particular, the effects of convergence in per capita income). Controlling for all these factors allows us to determine the extent to which the institutional “deepening” of the European Union has increased cohesion, as expressed in budgetary transfers. In this paper, we calculate the incremental contribution of each of the factors to the changes in intra-European transfers by using a stylized partially structural model. This model has a number of desirable features: (a) it is parsimonious and can be estimated using the limited data that is available; (b) once the model is estimated, the level of transfers can be calculated for any configuration of the European Union, including any set of members and member characteristics, such as population and per capita income; (c) the European Union zero-budget constraint is satisfied for any such configuration. In our approach we need not specify how the programs adjust to changes in demographic and economic factors. Rather, we directly calculate the net-effect of changes in these programs. To the best of our knowledge, this is the first such model-based decomposition analysis. Our results indicate that the strongest effect on net transfers is due to the faster increase in the per capita GDP of the relatively poorer member states. However this growth effect gets essentially completely nullified by the exchange rates realignment, which for the most part constituted a devaluation of the currencies of the poorer states. Therefore, the net contribution of these two factors in explaining the increase in net transfers is zero. The change in the willingness to transfer resources (e.g., the deepening the Union) accounts for 70% of the increase in transfers. Changes in the population in the member states account for only 10% of the increase. The remaining 20% is accounted for by the accession of Finland, Sweden and Austria (all three of these countries have per capita income above the EU average, increasing the variance in member state per capita income, thereby increasing intra-EU-transfers). One might instead have attempted to evaluate the incremental contribution of the factors mentioned above on the level of net transfers by adopting a simpler, accounting based, approach as follows: fix the budgetary rules at the beginning of the 1990s (the beginning of the Maastricht process), then calculate the effect of each of the changes in the above mentioned economic and demographic factors in the course of the 1990s (e.g., calculate the effect of the change in a country’s per capita income on that countries contributions and allotments under this particular set of budgetary rules). The residual level of transfers, e.g., the change in transfers that is not accounted for by the above procedure, is the change in transfers attributed to institutional changes and changes in the willingness to transfer resources. Such an approach is problematic (and not adopted by us) for the following reason: the budget constraint is likely to be violated at each step of the analysis; e.g., an increase in the per capita income of a country may reduce the receipts of this country, but also increase the revenues of the European Union. If this were to be a counterfactual, one would have to explain how the budgetary rules have to change so as to accommodate the reduction in the expenditure and the increase in revenues. Another way to describe this problem is as follows: the current programs were designed on the basis of the current distribution of income. If the distribution of income were different and all other factors were held constant, the programs would have been different. This issue becomes even more evident, when one wants to evaluate the effects of the 1995 enlargement. It is clear that the effect of this enlargement can not be measured simply by its impact on the revenue and expenditure base since new programs were introduced to take into consideration the needs of the new entrants. This research is related to the broader literature that investigates budgetary issues of the European Union. Most of the academic work on this area is focused on the effects of EU enlargement on transfers between the members states. A large part of this literature applies the current budgetary rules to the new membership in order to find the costs and benefits of enlargement, e.g., to find the change in the net transfers from the current to the new members and the benefits arising from further political and economic integration. The analysis typically includes a careful estimation of feedback effects of the enlargement on prices, trade, employment, and growth, often using partial or general equilibrium models (see Anderson and Tyers, 1995, Brown et al., 1997, Kohler, 2000 and Kohler and Keuschnigg, 2001, among others). These studies do not explicitly model the EU decision making process. A recent exception is Kandogan (2000) who estimates the budgetary costs of enlargement through the following partially structural procedure. First, he estimates the expenditure shares of member countries for different EU programs as a function of the importance the countries attach to these programs (e.g., the portion of their population affected by a program) and their voting power (expressed by the Shapley–Shubik measure, the normalized Banzhaf index, and the countries’ populations). Second, he assumes that the expenditures on current members will not be affected by the enlargement. Finally, he obtains the total EU budget that is implied by the above. This paper shares the same modeling approach with that in Deltas and Van Der Beek (2003), who estimate the changes in net transfers following the Eastern Enlargement of the European Union. This paper is organized as follows. Section 2 provides the underpinnings for our approach of modeling fiscal federalism. Section 3 outlines the theoretical model and the estimation framework. Section 4 describes our data, while Section 5 presents the results. The paper ends with a few concluding remarks.

This paper introduces a methodology of attributing changes in inter-governmental net transfers to changes in key characteristics of a federation, such as changes in population and per capita income of constituent states, the composition of the federation, and changes in the decision making structure. We apply this methodology to the European Union to investigate the extent to which the increase in net transfers between member states following the Maastricht Treaty has been driven by the increased political cohesion of the Union. We find that only two-thirds of the change in net transfers is driven by this change in the political process, the remainder being driven by the 1995 enlargement of the Union, and changes in the population of member states. It is noteworthy that the convergence in per capita income of member states, as measured by inflation-adjusted local currency has been completely compensated for by the devaluation of the currencies of poor member states. The methodology we introduce here can be applied more generally to a number of different federations. For example, one could determine to what extent has the sum of net contributions of states to the United States budget been increasing during the 20th century as the role of the Federal Government has increased, and to what extent the increase in these contributions is due to differential growth rates among the states and other factors. Similarly, one could use this methodology to investigate the role of political parties in explaining changes in the level and pattern of net contributions.