The EMU and Fiscal Policy in the New European Community: An Issue for Economic Federalism
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Description
As the countries of Western Europe move to a more centralized economic order, questions of federalism abound. A primary issue within the European Community (EC) relates to the often-used concept of subsidiarity: the guiding principle that government structure should internalize all economic externalities to the smallest level of government possible. To what extent should economic powers in the EC be centralized, and to what extent should they remain decentralized at the Member State level? This paper examines the general issue of federalism, or subsidiarity of economic policy, by evaluating the possible allocation of monetary and fiscal policy within the new EC. To determine whether a policy-making function should be centralized or decentralized, three questions must be answered. First, does decentralizing policy-making to the level of the Member States generate substantial economic spillovers between states? Second, if the answer is yes, we then ask whether a market mechanism or negotiated exchanges (i.e., Coasian bargains) will overcome the potential inefficiencies from these policy spillovers. If the answer here is no, we then turn to the possibility of centralized policy-making and ask, finally, can a central government perform the policy function more efficiently than individual Member States, recognizing that private politics, not social welfare, will be the driving motive behind central government decisions? Only if the answer to this third question is yes can we recommend centralizing government policy-making.
Source Publication
Economics of European Union Law
Source Editors/Authors
Paul B. Stephan
Publication Date
2007
Recommended Citation
Inman, Robert P. and Rubinfeld, Daniel L., "The EMU and Fiscal Policy in the New European Community: An Issue for Economic Federalism" (2007). Faculty Chapters. 2093.
https://gretchen.law.nyu.edu/fac-chapt/2093
