The centralization-decentralization issue

The make-up of the EU institutions, and their evolution, should explicitly be based on widely accepted federalism principles. This paper applies federalism principles to a few crucial questions, mainly fiscal policy, fiscal discipline and structural reforms, using where possible lessons from existing federations. After introducing the topic, Section 2 briefly reviews the key message from the fiscal federalism literature. The following sections use these principles to examine a number of areas where centralization may be insufficient or excessive in the EU. Section 3 looks at public spending, both in the aggregate and main functions. Taxes are examined in Section 4. The next section looks at the issue of fiscal discipline, a weak spot of the Eurozone. The allocation of policy competences, a key characteristic of the UE, is the object of Section 6. The last section concludes.