How much Europe? Subsidiarity, centralization and fiscal competition

To date, the political discussion of Europe’s future suffers from a surprising lack of foundation in terms of economic theory: the straightforward theory of fiscal federalism, which has been well developed in a vast body of literature, has been largely neglected. This paper tries to help fill the gap. It tries to see Europe’s development through the glasses of economic theory and to help draw the borderline between activities that should be shifted to the Community level and those that can be left within the nation states. The paper will first criticize current developments in Europe and clarify which of these should be categorized as policy failures. It will then sketch the obvious reasons for centralization. Thirdly, and most importantly, it will discuss the implications for centralization that result from the four basic liberties on which Europe has irrevocably agreed. -from Author