布鲁盖尔-Fiscal-federalism-in-crisis_-lessons-for-Europe-from-the-US_16页_412kb

Summary of "Fiscal Federalism in Crisis: Lessons for Europe from the US" by Zsolt Darvas, July 2010

Core Content

This document explores the differences in fiscal federalism between the European Union (EU) and the United States (US), with a focus on the implications for managing state-level fiscal crises. It argues that while the euro area is experiencing a severe fiscal crisis, the US is not, despite facing serious state-level fiscal issues. The author examines the role of fiscal federalism in crisis prevention and management, and evaluates the effectiveness of current fiscal reform proposals in the EU in light of the US experience.

Main Points

The Euro Area in Crisis: Why?

• Greek Solvency Problem: The crisis in the euro area, particularly the Greek fiscal crisis, has raised significant concerns, especially due to the fear of contagion and institutional deficiencies.
• Fiscal Situation: While the euro area has a better overall fiscal situation than the US, the level of fiscal discipline and institutional capacity is still insufficient.
• Credit Default Swaps (CDS): CDS levels for some US states have risen above those of euro-area countries, indicating higher perceived risk, although not to the level of Greece.
• Fiscal Outcomes: The euro area's fiscal stance remained expansionary in 2010, even as member states implemented austerity measures.

US Fiscal System: A Model of Federalism

• Centralisation of Revenues: The US federal government collects about two-thirds of total tax revenues, with states and local governments collecting the rest.
• Redistribution: The US system has a higher level of fiscal redistribution than the EU, with federal transfers playing a significant role in stabilising state budgets.
• Fiscal Rules: US states generally have more stringent fiscal rules, including balanced budget requirements, which help to prevent excessive debt accumulation.
• Automatic Stabilisers: The US federal government effectively used automatic stabilisers and discretionary fiscal stimulus during the crisis, whereas the EU allowed member states to handle their own fiscal responses with limited coordination.

Crisis Prevention and Management

• Federal Stabilisation Policy: The US federal government's ability to implement counter-cyclical fiscal policy has been more effective than the EU's, which has seen pro-cyclical responses in some states.
• No Default Mechanism: Neither the EU nor the US has a formal mechanism for resolving defaults at the sub-central level.
• No Bail-out from the Centre: Prior to the crisis, neither the US nor the EU had established mechanisms for bailing out states or member governments.
• No Currency Devaluation: Neither the euro area nor US states can devalue their currency or inflate debt to improve fiscal sustainability.

Key Differences

• Banking System Strength: The US has a more resilient banking system, which is crucial in managing fiscal crises, while the EU lacks similar centralised banking oversight.
• Labour and Product Market Flexibility: The US has more flexible labour and product markets, making it closer to an optimum currency area than the EU.

Fiscal Reform Proposals

• Current Proposals: Strengthening fiscal rules, increasing policy coordination, and establishing an emergency financing mechanism are proposed to improve the EU's fiscal architecture.
• Implementation Risks: These proposals may lead to disputes and lack credibility if not implemented effectively.
• Eurobond Proposal: Introducing a Eurobond covering up to 60% of member states' GDP would significantly enhance fiscal discipline, create a stable Eurobond market, and signal the irreversible nature of European integration.

Conclusion

• The US model of fiscal federalism provides useful lessons for the EU in managing fiscal crises.
• A higher level of fiscal federalism could improve the euro area's institutional setup, enhance fiscal discipline, and provide a stronger framework for crisis resolution.
• However, fiscal federalism is not inevitable, and the path to deeper integration requires political will and structural reforms.

Key Information

• Fiscal Federalism: A system where functions and responsibilities are distributed among different levels of government, with federal governments playing a central role in stabilisation and redistribution.
• Credit Default Swaps (CDS): A financial instrument used to measure the risk of government default.
• Eurobond: A bond issued by multiple countries collectively, which could help in pooling fiscal risks and improving market confidence.
• Optimum Currency Area: A concept referring to a region where a single currency can be effectively managed due to high economic integration and flexibility in markets.

Tables and Figures

• Table 1: Compares key fiscal indicators between the euro area and the US (2009-2011).
• Table 2: Shows the distribution of tax revenues in the US (2006).
• Figure 1: Illustrates CDS levels for selected EU countries and US states (2008-2010).
• Figure 2: Compares US federal budget revenues, spending, and balance with states (1999).
• Figure 3: Compares EU budget contributions, spending, and balance with member states (2008).
• Figure 4: Shows fiscal redistribution in the US and EU relative to GDP per capita.
• Figure 5: Displays the evolution of US public debt (1902-2012).
• Figure 6: Reflects the trend in US state spending (1990-2010).

Authors and Contact

• Author: Zsolt Darvas, Research Fellow at Bruegel, Hungarian Academy of Sciences Institute of Economics, and Associate Professor at Corvinus University, Budapest.
• Contact: info@bruegel.org, +3222274210.