The redistributive effects of the EU budget: an analysis and a proposal for reform

Abstract This paper analyzes the redistributive effects of the EU budget during the period 1986-98, explores the implications of the Berlin budget agreement and advances a proposal for setting member countries' budgetary balances in a manner consistent with a simple equity criterion based on relative income per capita. Using an extension of a standard methodology, we find that the redistributive impact of the EU budget has been considerable in view of its small size, that it has tended to increase over time, and that it is mostly due to the effects of structural programmes. We also find that, in spite of the relative loss of weight of structural transfers, the expenditure side of the Berlin budget agreement represents a noticeable (but small) improvement over the previous financial perspectives in terms of both its redistributive impact and its horizontal equity properties. Our proposed allocation criterion involves the correction of horizontal inequities while preserving the current degree of redistribution. This would involve a sizable reallocation of net contributions across rich countries and only a modest reduction in north-south fiscal flows.