ABSTRACT
This chapter analyses the functioning of fiscal transfers and convergence processes in the European Union as a whole and in individual EU countries, in particular Germany and Italy, and discusses the experience of the functioning of fiscal union in the United States. There is strong evidence that fiscal transfers don’t improve the competitiveness of underdeveloped regions or countries. As a consequence, transfers intended to be stabilising (temporary and countercyclical) become permanent instruments of redistribution. Thus, the assumptions formulated in the EU’s strategic documents – that the future eurozone budget won’t lead to permanent transfers between countries in a single direction, and won’t become a mechanism for equalising incomes among member countries – must be recognised as being divorced from reality.
