There has been renewed interest in economic analysis of the EU budget following the Global Crisis. For each euro paid by an average net (EU member state) contributor, approximately 75 cents return through the EU budget, and 25 cents cross a border. At the margin, the US federal budget is less redistributive in normal times […]
The economic analysis of the budget of the EU has historically attracted significant attention, with a renewed interest emerging in the wake of the late 2000s Crisis and in view of the recent adoption of the Multiannual Financial Framework (MFF) 2014-20 (European Commission 1977, Freyer and Sacerdote 2013, Escolano et al. 2015). In a recent paper, I provide new evidence on the magnitude and main drivers of cross-border flows operated through the EU budget (D’Apice 2015). Within this context, a new measure of cross-border flows for the EU as a whole is proposed along with more common country-by-country measurements. I make use of a rich dataset on EU budgetary execution, allowing the role played by different funds to be disentangled. The period of time considered (2007-13) further allows the smoothing out of annual fluctuations and covers in full the previous MFF.
How is the EU budget financed?
The budget of the EU is financed mostly by national contributions based on GNI and a statistical VAT base. As a result of a system based on flat rates applied to harmonised bases, most (though not all) member states contribute a sum roughly equivalent to 0.9% of national income to the EU budget. Other revenues (custom duties and EU fines) account for 0.1-0.2% of EU GDP, so that the total revenue hovers around 1% of the EU GDP and fully matches expenditure. Despite several attempts by the European Commission to avoid ad hoc interventions, several exceptions and reductions have been introduced over time to an otherwise fairly simple system.1 Due to these corrections, countries such as the UK, the Netherlands, Sweden, Germany, and Austria reduce their combined GNI and VAT contributions by up to one third. National contributions hence vary between 0.6% and 0.9% of national income.