Fiscal Federalism and European Economic Integration by Mark Baimbridge

By Mark Baimbridge

The velocity of monetary integration among ecu Union (EU) member states has sped up significantly prior to now decade, highlighted via the method of financial and financial Union (EMU). Many facets of the EU's gear, notwithstanding, have did not evolve to be able to meets those new demanding situations. This booklet explores the problem of monetary federalism in the context of ecu integration from theoretical, historic, coverage and worldwide views. It contrasts the speed of integration among ecu member states with the failure of monetary and administrative equipment to conform to surround economic federalism, i.e. the advance of a centralised budgetary procedure. This awesome assortment, with contributions from quite a number across the world revered authors, shall curiosity scholars and researchers concerned with ecu economics and fiscal integration. Its available sort also will make it super worthy to policy-makers and execs for whom eu financial integration is an everyday subject of dialog.

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This exercise produced some intriguing equivalence theorems. For example, it is straightforward to show that a lump-sum grant to a group of people is fully equivalent in all its effects, both allocative and distributive, to a set of grants directly to the individuals in the group. Moreover, this result applies to an important class of collective-choice procedures, encompassing several of the major models employed in the public-finance literature. These theorems, known as the ‘veil hypothesis,’ thus imply that a grant to a community is fully equivalent to a central tax rebate to the individuals in the community; intergovernmental grants, according to this view, are simply a ‘veil’ for a federal tax cut.

Such taxes (and any associated benefits from spending programmes) will simply be capitalized into local land values. Thus, fiscally hard-pressed city governments have at their disposal a tax base that cannot escape them through mobility. There is some evidence in this regard that the city of Pittsburgh, which has used a graded property tax under which land is taxed at five times the rate on structures, has experienced an expansion in building activity that might not have been forthcoming in the presence of a higher tax on mobile capital.

McKinnon (1997a), for example, contends that in the United States, the economic resurgence of the South following World War II resulted from relatively low levels of wages and other costs. It was this attraction of low wages and costs that ultimately induced economic movement to the South, bringing with it a new prosperity. Fiscal equalization, from this perspective, may actually hold back the development of poorer areas by impeding the needed interregional flow of resources (both emigration and immigration) in response to cost differentials.

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