Financing EU Public Goods: Vertical Coherence between EU and National Budgets

Abstract

The combination of the challenges emerging from the 2020 pandemic outbreak, amid an unprecedented macroeconomic context, and a limited EU budget, inevitably call for reflections about synergies, or ‘vertical coherence’, between EU and national budgets. The proposals for a larger EU budget, the target of carbon neutrality by 2050, the temporary relaxation of rules for fiscal policy and state aid, would all require greater coordination across government layers. Within this context, this paper studies structural co-movements between EU and national spending over the past two decades, trends that deserve a longer-term assessment, beyond the current response to the pandemic. It finds some synergies, often of a positive sign (leverage rather than substitution), but always very small in magnitude. In light of those results, the paper proposes an “EU public goods rule” for the financing of EU policies, within a commonly agreed and policy-consistent framework.