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Cover von: EU Financing and Regional Policy: Vertical Fiscal Externalities when Capital is Mobile
Matthias Wrede, Robert Fenge

EU Financing and Regional Policy: Vertical Fiscal Externalities when Capital is Mobile

Rubrik: Articles
Jahrgang 63 (2007) / Heft 4, S. 457-476 (20)
Publiziert 09.07.2018
DOI 10.1628/001522107X268970
Veröffentlicht auf Englisch.
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Beschreibung
This paper considers the EU regional policy and analyzes two kinds of externalities that can explain why matching grants are used to subsidize regional infrastructure: horizontal pecuniary externalities via capital markets, and positive vertical fiscal externalities created by the financing of the EU budget. Matching grants should correct for both externalities. As an extension the paper considers possible alternatives of the EU financing system and malevolent governments. While a tax on the GDP of the member states would increase the vertical fiscal externality, governments that misuse funds decrease it. However, calculations of the size of externalities show that matching grant rates needed for internalization are quite low.