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João Capella-Ramos

2 December 2020
Before the outbreak of the coronavirus (COVID-19) pandemic, discussions were already taking place on how to complete Economic and Monetary Union (EMU) and increase its resilience, inter alia, by speeding up economic convergence. The impact of the current unprecedented crisis on the euro area economy has given the debate new impetus. As a contribution to this topic – and without going into details of new mechanisms for crisis resolution – this paper analyses the role of fiscal transfers in real and business cycle convergence at a regional level. The paper distinguishes between net fiscal transfers – a broad measure defined as the ratio between disposable and primary incomes – and EU structural and investment funds. It provides evidence that net fiscal transfers have contributed to income redistribution across regions and to faster convergence in disposable incomes, although not to higher economic growth and real convergence. More positive evidence has been found for the role of the EU structural and investment funds over the medium term, based on the newly available – and richest so far – European Commission database. Going forward, in addition to efficiency considerations, which are important for real convergence, recommendations on the size and allocation of fiscal transfers should account for their impact on the business cycle. At the same time, in the longer run, it should be borne in mind that fiscal transfers are no substitute for genuine structural reforms and sound macroeconomic and fiscal policies when it comes to promoting sustainable economic growth and convergence.
JEL Code
H54 : Public Economics→National Government Expenditures and Related Policies→Infrastructures, Other Public Investment and Capital Stock
H77 : Public Economics→State and Local Government, Intergovernmental Relations→Intergovernmental Relations, Federalism, Secession
O47 : Economic Development, Technological Change, and Growth→Economic Growth and Aggregate Productivity→Measurement of Economic Growth, Aggregate Productivity, Cross-Country Output Convergence
6 August 2018
Economic Bulletin Issue 5, 2018
Within the EU governance framework for the coordination of economic policies, the country-specific recommendations (CSRs) represent an integral part of the annual European Semester process. They provide guidance to individual EU Member States on how to address structural reform needs and macroeconomic imbalances in the following 12-18 months. CSRs are the instrument through which EU national economic policies are treated as a matter of common concern and coordinated within the Council of the European Union in accordance with Article 121 of the Treaty on the Functioning of the European Union. They therefore constitute a cornerstone of the EU's macroeconomic imbalance procedure (MIP), whose aim is to prevent, detect and correct macroeconomic imbalances in individual countries, thereby containing risks to the smooth functioning of Economic and Monetary Union (EMU). Their timely and proper implementation is critical to reducing vulnerabilities and strengthening the economic resilience of the euro area and the EU as a whole, ultimately leading to higher growth potential in the long term. Against the background of the 2018 CSRs received by 27 EU Member States (i.e. all excluding Greece ), this box examines the policy recommendations addressed to 18 euro area countries, with the exception of those that pertain strictly to the implementation of the EU's Stability and Growth Pact.
JEL Code
E60 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook→General
F42 : International Economics→Macroeconomic Aspects of International Trade and Finance→International Policy Coordination and Transmission