Fiscal union
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Fiscal union is the integration of the fiscal policy of nations or states. In a fiscal union, decisions about the collection and expenditure of taxes are taken by common institutions, shared by the participating governments. A fiscal union does not imply the centralisation of spending and tax decisions at the supranational level. Centralisation of these decisions would open up not only the possibility of inherent risk sharing through the supranational tax and transfer system but also economic stabilisation through debt management at the supranational level. Proper management would reduce the effects of asymmetric shocks that would be shared both with other countries and with future generations.[1] Fiscal union also implies that the debt would be financed not by individual countries but by a common bond.[2]
In the European Union, fiscal union has been mooted as a next step forward into deeper European integration but, as of July 2022[update], remains largely just a proposal. If fiscal union were to happen, national expenditure and tax rates would be set at European Council level. There would be Eurobonds instead of individual national bonds that would finance collective Euro debt.[2]
European Union
It is often proposed that the European Union should adopt a form of fiscal union. Most member states of the EU participate in economic and monetary union (EMU), based on the euro currency, but most decisions about taxes and spending remain at the national level. Therefore, although the European Union has a monetary union, it does not have a fiscal union.
Laruffa describes the European economic governance as "an economic constitution made by rules, policies and institutional practices aimed to establish the a fiscal-monetary policy mix, competition rules, financial markets regulations, the single market and international trade policies. When the euro was created, monetary policy was established as a centralized policy, while fiscal policy remained in the hands of national authorities under some institutional arrangements for sound budgetary policy and an ex-ante control by the European Commission."[3]
Control over fiscal policy is considered central to national sovereignty, and in the world today there is no substantial fiscal union between independent nations. However the EU has certain limited fiscal powers. It has a role in deciding the level of
On 2 March 2012, all members of the European Union, except the Czech Republic (who joined later) and the United Kingdom, signed the European Fiscal Compact, which was ratified on 1 April 2014. The treaty is designed to implement stricter caps on government spending and borrowing, including automatic sanctions for countries breaking the rules. The results of the treaty on the Eurozone economy, are yet to be known.[4]
With the crisis of the euro area deepening, more and more attention has been put by scholars on completing the fiscal side of the monetary union. Marzinotto, Sapir and Guntram Wolff (2011), for example, were among the first to call for proper fiscal resources at the federal level that would allow to stabilize the financial system and if necessary help individual countries (What kind of fiscal union? Archived 2013-10-22 at the Wayback Machine).
Advantages of fiscal union
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A common currency and standard interest rate are difficult to manage without a fiscal union that provides similar borrowing costs. The European debt crisis demonstrated that monetary union cannot function well without fiscal union. The macro-economic imbalances cannot be managed without a standard federal structure that organises spending and revenue collection in the Eurozone.[citation needed] Otherwise, asymmetric shocks will affect the stability of the euro.[citation needed] Thus, the combination of national fiscal policy with the European monetary system is unsustainable.[citation needed] A fiscal union under proper democratic control run by a European Union finance ministry would provide the Union with stability and strength, sharing credit risk through the imposition of strict fiscal policy.[5]
In the view of some economists, European fiscal union with strong institutions would be able to manage the EU economy as a whole more appropriately. The benefits from this union would be seen both in the short and in the long term. In case of a future crisis, the probability of its appearance would decrease, and in case of occurrence it would be less severe.[6] The emergence of fiscal union will ensure more creditability towards developing European countries because risks will be shared among all the state members. Weaker Euro countries would benefit from sharing the same Euro bonds as more creditworthy countries.[5] Also, a centralised fiscal policy will introduce more tools for a particular policy implementation rather than national policies. By transferring some fiscal responsibilities to the centre, it would offset the decrease of some stabilisation capacity at the country level resulted from active control of national budgets.[6]
See also
References
- JSTOR 2673880.[permanent dead link]
- ^ a b "Fiscal Union Explained - Economics Help". Economics Help. 18 November 2017. Retrieved 2019-04-28.
- ^ Laruffa Matteo, The European Economic Governance: Problems and Proposals for Institutional Innovations, Winning Paper for the Annual Meeting Progressive Economy, Brussels, 6 March 2014.
- ^ "Statement By The Euro Area Heads Of State Or Government" (PDF). Retrieved 2011-12-13.
- ^ a b "Arguments for and against fiscal union". Debating Europe. Retrieved 2019-04-28.
- ^ ISBN 9781484325186.