Redistributive Politics in a Political Union: The Case of the EU

One of the main functions of centralized budgets in federal and political unions is to act as an equalizing mechanism to support economic cohesion. This is also the case with the European Union’s budget, which operates as a redistributive mechanism that counteracts the cross-national and cross-regional inequalities created by the single market. Despite the fact that the principle of ‘juste retour’ has traditionally limited the redistributive capacity of the EU, the net fiscal position of member states - what they pay to the EU budget minus what they receive from it - is very diverse, and has changed quite remarkably over the last decades. In this paper, we investigate how and why the net fiscal position of each member state towards the rest of the EU changes over time. Using a novel panel dataset (1979-2014), we study how some key national and EU-level political and economic variables affect the EU redistributive dynamics. We find that the relative wealth of a country vis-à-vis the other EU countries is a powerful factor in explaining its net fiscal position, but the change in the relative wealth of a country over time has little effect on its position as net contributor or net beneficiary. In addition, we find that the political orientation of national governments does not per se influence redistributive politics with in the EU. However, when the unemployment rate is rising, right-wing governments are able to extract significantly larger budgetary benefits.