Looking at US experience in view of deepening EMU

24-10-2017

Although the fiscal frameworks of the United States of America and the European Union were set up during different historic periods, had different economic drivers and are at different stages of development, the euro area can learn from the US experience. For instance, recent research suggests that one useful element might be to earmark revenue, i.e. to pre-identify sources of revenue to be directed to fund those policies that are better dealt with at EU level, so that there is a direct link between revenue collected and issues solved. 'Trust fund' structures of this type can be financed by means of explicit user fees (e.g. for visas), fees on related use items (e.g. air or sea fare tickets) or broad-based taxes (e.g. income, payroll or consumption tax). Other research in this area focuses on the factors behind the contrasting experiences of the United States and the euro area during the financial crisis as regards consumption smoothing or resilience to shocks. Research shows that the role of automatic stabilisation in US fiscal policy, including that of unemployment insurance, has been overstated and that other factors should be taken into account to explain the United States' resilience during the crisis. When it comes to resilience to shocks, the contrasting experience of the euro area cannot meanwhile be attributed wholly to the fact that market-based risk-sharing is higher in the United States, but weight must also be given to measures, such as the interventions of the Federal Deposit Insurance Corporation to protect deposits, or ad hoc policy interventions by the Federal Reserve and Congress, such as the action plan to avoid the default of Fannie Mae and Freddie Mac.

Although the fiscal frameworks of the United States of America and the European Union were set up during different historic periods, had different economic drivers and are at different stages of development, the euro area can learn from the US experience. For instance, recent research suggests that one useful element might be to earmark revenue, i.e. to pre-identify sources of revenue to be directed to fund those policies that are better dealt with at EU level, so that there is a direct link between revenue collected and issues solved. 'Trust fund' structures of this type can be financed by means of explicit user fees (e.g. for visas), fees on related use items (e.g. air or sea fare tickets) or broad-based taxes (e.g. income, payroll or consumption tax). Other research in this area focuses on the factors behind the contrasting experiences of the United States and the euro area during the financial crisis as regards consumption smoothing or resilience to shocks. Research shows that the role of automatic stabilisation in US fiscal policy, including that of unemployment insurance, has been overstated and that other factors should be taken into account to explain the United States' resilience during the crisis. When it comes to resilience to shocks, the contrasting experience of the euro area cannot meanwhile be attributed wholly to the fact that market-based risk-sharing is higher in the United States, but weight must also be given to measures, such as the interventions of the Federal Deposit Insurance Corporation to protect deposits, or ad hoc policy interventions by the Federal Reserve and Congress, such as the action plan to avoid the default of Fannie Mae and Freddie Mac.