Fiscal capacity for euro area- towards a bigger EU budget?

Tomasz Rosiak ()
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Tomasz Rosiak: Warsaw University

No 93/2015, Working Papers from Institute of Economic Research

Abstract: The European Union has recently implemented one of the biggest reform packages in its history. Developed solutions are designed to (1) strengthen EU’s resilience to shocks and (2) improve its shock absorption capabilities. It seems that so far stress was mainly placed on the first objective. Among the reforms, which satisfied the second objective, the European Stability Mechanism (ESM) plays a key role. However, this is not the only solution. The European Union is also developing a fiscal capacity for the euro area. On the base of a subject literature study, I have developed a model with boundary conditions of fiscal federalism, which then was compared to macroeconomic data for the EU. Results of my findings show that the European Union, and especially the euro area, share a lot of characteristics typical for fiscal federalism. From this point of view, a budget for the euro area seems to be the best form of fiscal capacity. However, it could bring further fragmentation of economic integration process in the EU which probably would not positively contribute towards the stability in the political sphere.

Keywords: Fiscal capacity; Fiscal federalism; European Union; Euro area; EU Budget (search for similar items in EconPapers)
JEL-codes: E60 E61 E62 E63 (search for similar items in EconPapers)
Date: 2015-04, Revised 2015-04
New Economics Papers: this item is included in nep-eec and nep-mac
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