Policy Autonomy, Coordination or Harmonization in the Persistently Heterogeneous European Union?

Abstract

Within the context of the continuing integration process in Europe, this paper addresses the question of whether policies in the EU should head towards autonomy, coordination or harmonization. Taking the path dependence effect into account, it is the authors' opinion that Europe has gone too far in its integration process to be able to continue with policies being fully under the competences of individual member countries. However, the habitual question still arises: does fiscal policy need to be harmonized to a level comparable to monetary policy as these two policies, necessarily, complement each other? This paper argues that it does not. There are three main arguments discussed. Firstly, the authors build on the theory of fiscal federalism. Secondly, there are significantly different regimes of welfare states and extents of social policies among European countries, which strongly determine the character of public finance. And thirdly, the tax systems across Europe are also highly divergent, with many features of continuing tax competition.

The Effect of Fiscal Policy Asymmetries on Business Cycle Correlation in the EU

“…Apart from the augmentation of the Stability and Growth Pact (SGP) by the Fiscal Compact rules introduced in the Treaty on Stability, Coordination, and Governance (2011), there has hardly been any progress in government spending and tax policy harmonization or coordination in Europe. Poor fiscal convergence in the EU is confirmed by several authors, suggesting that economic integration and monetary unification in Europe does not necessarily lead to fiscal convergence for member states (Kočenda et al, 2008;Schalck, 2012;Bertarelli et al, 2014;Kouba et al, 2016;Blanco et al, 2020). Fiscal policy conduct remains significantly heterogeneous in the contemporary EU.…”

“…The importance of fiscal discipline framed by strict numerical rules is stressed e.g. by Holm-Hadulla et al (2012) or Kouba et al (2016). To the best of our knowledge, the impact of fiscal indiscipline on business cycle synchronicity is not sufficiently examined in the literature compared to fiscal similarity, especially the effects of interaction between the extent of the bilateral fiscal similarity and fiscal indiscipline of countries in business cycle correlation.…”

Tax Policy Assessment in Slovenia – Case of Interest Tax Shield

“…In the last decade, we have witnessed many and rapid changes in Slovenian tax legislation, sometimes even reforms, while the effects of those have been analysed neither ex-ante (preliminary) nor ex-post (later). Several of them have been the result of tax policy coordination within the European Union (EU) (Kouba et al, 2016). In addition to the strictly settled objectives of each respective legislation change, the legislator's main objective in the field of corporate income taxation should be to increase international economic efficiency and the tax neutrality of international tax policy 5,6,7 .…”