4.1. Structure and functions of government tiers
EU is now making relevant steps toward becoming a full fledged “Federation,” leaving the
“Confederation” model behind. The process may be slow-moving but eventual arrival is al-
most certain. This at least has been the common historical experience of existing Federal
States. The outlining of tax reforms should then show awareness of EU institutional trends
and not conflicting with them, difficult as they are to be precisely foreseen.27 Due to this un-
certainty, here we will not go beyond a brief discussion of some (personal) broad guesses.
This somewhat daring aptitude is however necessary to pinpoint a fist (rough and uncertain)
framework which might serve as a starting reference to begin and not evade a discussion of
such relevant questions, commonly skirted and left to the speculations of few amateurs of
European things.
The EU present institutional setting is made up of no less than five tiers of government:
Union, National Countries, regions, local governments, the last usually split into counties and
municipalities. It is very doubtful whether this arrangement could ultimately function, due to
its huge transactions costs of and the large room for overlaps between upper and lower tiers.28
A widespread opinion suggests that the national governments will not disappear at all but will
result in being the losers, overwhelmed by the need to enlarge Union powers and the en-
forcement of subsidiarity’s principle at the lower (regional+ local) tier.
Apart from some exceptions, the prevailing literature seems to favor an enlargement of
the EU powers from time to time, provided that Europe government has been made democ-
ratically accountable. Stabilization function has begun a long, difficult and piecemeal shift
from the states to the Union, but by common consent its present stage of transition is still
quite unsatisfactory. Allocation function should go beyond current regulatory activities and
the strengthening of internal market. A largely shared proposal is to gradually extend its role
in its area of intervention, as to encompass defense, research & development and a European
transport network.
27 This is also true for the widespread processes of fiscal decentralization which are occurring in many European
Countries (Gandullia 2003 and OECD 2002b).
28 The figures are far from being reassuring. By considering only present EU Member Countries’, Regional gov-
ernments are in the order of about 150, counties, provinces and departments are about 400, municipalities stay
well over 100 000, of which the most have less than 10 000 inhabitants (OECD 2002b). It is obvious that some
restructuring will take place but it is also hard to precisely envisage possible future solutions.
18