Professor Stefan Collignon Co-evolution of Markets and States 1. What is modernity?
Professor Stefan Collignon 1 Fiscal Policy and Democracy in Europe Österreichische Nationalbank,...
-
Upload
ibrahim-fishwick -
Category
Documents
-
view
216 -
download
0
Transcript of Professor Stefan Collignon 1 Fiscal Policy and Democracy in Europe Österreichische Nationalbank,...
1
Professor Stefan Collignon
Fiscal Policy and Democracy in EuropeÖsterreichische Nationalbank, Wien, 5.11. 2004
Stefan Collignon
Professor of European Political Economy LSE
2
Professor Stefan Collignon
Europe’s fiscal Constitution
The Constitutional Treaty brings many innovations
• Efficiency in policy making
• Greater role of EP
• Citizens and states as equal source of European sovereignty (art.1)
3
Professor Stefan Collignon
Europe’s fiscal Constitution
But the Constitutional Treaty
• Has not innovated on fiscal policy
• Has even reduced the EU-budget powers of the European Parliament
• Instead: SGP passes from rule-based to arbitrary arrangement among governments
Pre-democratic fiscal policy
4
Professor Stefan Collignon
Europe’s fiscal Constitution
Fiscal policy matters for economy• Automatic stabilizers smoothen disposable income
and demand• Discretionary tax policies aim at supply side effects
» ECB Monthly Bulletin, April 2004
But also for democracy• Imposing rules on democratically elected Govts?
– The irony of new MS: surrender democracy at the door
• “No taxation without representation”• Therefore: only national competence?
5
Professor Stefan Collignon
Europe’s fiscal Constitution
Fiscal federalism assigns functions to jurisdictions:
• Allocation policy : decentralised – Preference heterogeneity
• Stabilisation policy: centralised– Collective action problem
• Redistribution policy : centralised– Collective action problem
6
Professor Stefan Collignon
Europe’s fiscal Constitution
Europe’s fiscal Constitution is not optimal:
• The bulk of spending is through national budgets• EU budget only 1% of GDP• SGP is only loose coordination tool• What matters for macroeconomic stability is the
interaction of monetary policy with the aggregate fiscal stance
7
Professor Stefan Collignon
Europe’s fiscal Constitution
Figure 1. Tota l P ublic S pe nding a s pe rce nt o f G DP
26.9%
33.2%
37.0%
36.8%
37.8%
39.9%
42.0%
42.6%
43.5%
44.2%
46.0%
47.0%
47.4%
50.6%
50.9% 0.6%
0.8%
0.8%
0.9%
0.8%
1.0%
0.8%
0.9%
0.8%
0.9%
0.9%
0.9%
0.8%
0.9%
1.1%
0% 10% 20% 30% 40% 50% 60%
Ireland
United Kingdom
Lux embourg
Nether lands
Finland
A us tr ia
Franc e
Sw eden
National Public Sector 2003
EU spending
8
Professor Stefan Collignon
Europe’s fiscal Constitution
Stabilisation policy is not optimal• Automatic stabilisers work• But SGP is far from being applied• Uncoordinated fiscal policy led to monetary
tightening• SGP can not guarantee coherent aggregate fiscal
policy stance• SGP introduces rigidity into the conduct of fiscal
policy
9
Professor Stefan Collignon
Europe’s fiscal Constitution
Firgure 2. Euroland aggregate fiscal stance
-6
-5
-4
-3
-2
-1
0
1
2
3
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Euro area actual deficitExcessive Deficitstructural deficitAutomatic stabiliser
EM
10
Professor Stefan Collignon
Europe’s fiscal Constitution
Efficient stabilisation requires:• Capacity to respond to symmetric and asymmetric
shocks– Vertical flexibility responds to symmetric shocks
– Horizontal flexibility responds to asymmetric shocks
• Reflect collective preferences about the intergenerational burden sharing
11
Professor Stefan Collignon
Europe’s fiscal Constitution
Vertical flexibility• In EMU the appropriate response to symmetric
shocks are determined by the interaction between monetary and aggregate fiscal policy– At the moment fiscal policy is constrained by Excessive
deficit procedure– Balanced structural budgets are not realised– the main burden is on monetary policy
• Performance since the start of EMU has been benign– Shocks have been less severe– What about the future?
12
Professor Stefan Collignon
Europe’s fiscal Constitution
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
-0.04
-0.03
-0.02
-0.01
0.00
0.01
0.02
0.03
Figure 4. Euroland output gap and economic shocks
output gap (deviation from potential) forcast error LeuroGDP(L8)
13
Professor Stefan Collignon
Europe’s fiscal Constitution
Horizontal flexibility
• Asymmetric shocks also have been less severe– Are symmetric shocks disappearing in EMU?– Danger of heterogeneous collective preferences
if political system does not allow collective deliberation and choice
14
Professor Stefan Collignon
Europe’s fiscal Constitution
Figure 4. Asymmetry of shocks in Euroland
-0.02-0.01
00.010.020.03
0.040.050.060.070.08
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
gro
wth
rat
e
0
0.005
0.01
0.015
0.02
0.025
0.03
0.035
0.04
stan
dar
d d
evia
tio
n
Euro area grow th rateStandard deviation Euro area grow thStandard deviation EU15
Bretton Woods
Euro
German unif ication
15
Professor Stefan Collignon
Europe’s fiscal Constitution
Horizontal flexibility can be achieved by
• Intertemporal transfers– Regional governments borrow to sooth income– Constrained by SGP
• Interregional transfers– Federal system compensates asymmetric shocks– E.g. Länderfinanzausgleich
16
Professor Stefan Collignon
Europe’s fiscal Constitution
• In the EU interregional transfers do not reflect asymmetric shocks
• EU interregional transfers exclusively follow a redistribution logic– EU budget redistributes income to farmers and
poor regions
17
Professor Stefan Collignon
Europe’s fiscal Constitution
• Asymmetric shocks lead to transnational intertemporal borrowing– The mode of financing the EU budget causes
distortions in national budget policies– EU budget is financed by a levy on national
budgets– Net contributors use domestically raised
income for expenditure elsewhere– Hence, they borrow for others
18
Professor Stefan Collignon
Europe’s fiscal Constitution
Table 1. European net contributions and budget deficits 2002
in percent of GDP Net contribution Cycle deficit Structural deficit SD-NC actual deficit AD-NC
NC SD AD
Portugal 2.08 0.02 -2.72 -4.81 -2.71 -4.79 FR. Germany -0.24 -0.15 -3.37 -3.13 -3.52 -3.28 France -0.14 0.56 -3.66 -3.52 -3.10 -2.96 Greece 2.40 1.31 -1.46 -3.86 -0.16 -2.55 Italy -0.23 -0.01 -2.30 -2.07 -2.31 -2.08 Austria -0.10 -1.43 -0.15 -0.04 -1.58 -1.47 Belgium -0.10 -1.54 0.02 0.12 -1.52 -1.43 Spain 1.27 -0.12 0.21 -1.07 0.09 -1.18 United Kingdom -0.17 1.18 -1.41 -1.24 -0.24 -0.06 Ireland 1.22 3.16 -1.87 -3.09 1.29 0.07 Netherlands -0.49 2.11 -2.05 -1.56 0.05 0.54 Sweden -0.29 1.06 0.81 1.10 1.87 2.16 Denmark -0.09 1.33 1.11 1.20 2.44 2.53 Finland 0.00 0.44 3.75 3.76 4.20 4.20
19
Professor Stefan Collignon
Europe’s fiscal Constitution
For example:• Germany’s net contribution is 0.24% of GDP
– Its actual deficit in 2002 was 3.53%– Without Net Contribution: 3.28 %
• France: Net Contribution of 0.14 %– Actual deficit 3.10 %– Without net contribution: 2.96 %
• Portugal received net contribution of 2.08 %– Actual deficit: 2.71 – Without net contribution: 4.79 %
20
Professor Stefan Collignon
Europe’s fiscal Constitution
This system is unsustainable !• National finance ministers will wish to reduce net
contributions• especially when under the pressure of reducing deficits
under the SGP• The European Union will have less and less the
financial means to implement its policies
Europe’s present fiscal constitution carries the risk of European Disintegration
21
Professor Stefan Collignon
Europe’s fiscal Constitution
• What is the solution?
• We need to integrate fiscal policy at the European level– Integrate national and EU budgets
– Define aggregate fiscal policy stance in Euroland
– Finance EU budget by Euro-tax
– Create democratic input legitimacy in addition to efficient output legitimacy
22
Professor Stefan Collignon
Europe’s fiscal Constitution
• Defining the aggregate fiscal policy stance– Top down: define the aggregate deficit that is desirable given the
economic environment– Vertical flexibility
• Give democratic legitimacy to this choice– If EU policy stance must have authority over partial national
preferences, it requires a vote reflecting all European citizens– European Parliament should vote macroeconomic framework
law: BEPG– Democratic debates will transform collective preferences
Josef Christl: “dialogue will help bridge the gap between political European elite and European citizens”
23
Professor Stefan Collignon
Europe’s fiscal Constitution
• Assign deficit quota to decentralised jurisdictions– Horizontal flexibility– Tradable deficit permits most elegant solution– Solves problem with “domestic stability pacts”– Makes decentralised fiscals decisions accountable
and coherent with monetary policy
24
Professor Stefan Collignon
Europe’s fiscal Constitution
• Reform the financing of EU Budget– The “own resources” must become own resources– Introduce Eurotax
• Vat• Corporate tax• Capital income• Energy tax
– Make the European Parliament responsible for taxing and spending
• Only European-wide debates can foster European collective preferences for public goods
• Co-legislation with Council as there may exist esternalities
25
Professor Stefan Collignon
Europe’s fiscal Constitution
To summarise• Europe’s fiscal constitution is severely handicapped• The Constitutional Treaty does not remedy• With the single market and the euro European
citizens share many more public goods, their
res publica• These goods need an efficient and democratic
common management
26
Professor Stefan Collignon
Europe’s fiscal Constitution
Conclusion
Ceterum censeo: pactum stabilitatis esse delendum
Et rem publicam europaeam esse errigendam