Horse-trading over the EU budget

About 75% of the EU budget are transfer expenditures that go to the agricultural sector and to regional policies. This has long been criticised but the structure of the EU budget has barely changed over the last decades. The EU finances are mainly based on a unanimous agreement between the heads of state or government of the EU member states. During budget negotiations, horse trading or logrolling is a common practice. Negotiators combine expenditure positions and arrangements on the revenue side in different ways until they find a package deal which provides each member with a net utility gain. The paper shows that this is rational under the given constraints yet not necessarily efficient.