Similarly, harmonized general government taxes and expenditures are averaged to derive
the “EU budget allocation benchmark.” This benchmark consists of population-weighted
averages of harmonized taxes and spending per capita.42 Table 3.1 shows general
government revenues, expenditures, surpluses/deficits, and debt figures for the base year
of the calculation (2004) for the 23 EU countries included in the calculations and shows
the corresponding averages across those countries. The totals are calculated using data on
detailed revenue and expenditure categories taken from the Eurostat database.
It should be noted that the total revenue column in Table 3.1 includes “imputed social
contributions”, which represent unfunded obligations on account of social transfer
guarantees provided by some countries—guarantees that are not supported by explicit
transactions for funding them. The motivation for including those imputed revenue items
was to avoid over-representing current fiscal deficits and retain comparability of fiscal
cash flows across EU countries.
Finally, profiles by age and gender of various harmonized taxes and transfer payments
per capita are averaged across all EU countries using age- and gender-specific population
weights. Unfortunately, data on tax and transfer profiles are not available for all EU
countries. Hence, the estimates reported below are based on available partial data used to
construct the “EU cohort-distributive benchmark”.43
Putting all four dimensions together yields an EU benchmark economy. As shown below,
this construct enables a decomposition of country-specific fiscal imbalances into their
demographic, productivity, and fiscal policy (budget allocation and cohort-distribution)
components. Replacing the EU benchmark value of one of the components - either one of
demographic, productivity growth, budget allocation, or cohort-distribution profiles -
with its value for a specific country and recalculating FI would show that component's
contribution to the FI of the country in question. Replacing all of a particular country’s
features (and rescaling to match the country’s population size) would show the overall
contribution of all components.
The purpose of such a set-up is to enable a detailed surveillance of country-specific
differences in fiscal imbalances by distinguishing between those arising from
demographic and fiscal policy differences. Knowledge of these differences is likely to
prove useful when judging and negotiating long-term fiscal reforms. Agreement on an EU
benchmark construct would provide a common reference point against which to evaluate
each country’s fiscal stance and the sources of difference. It would provide a common
metric, permitting an apples-to-apples comparison of each country’s fiscal position.
42
43
An alternative method would be to use simple averages across countries of their per capita taxes and
transfers. That would imply placing equal weight on each sovereign nation’s budget allocation.
However, the resulting allocation would not correspond to a “representative” EU budget allocation.
Implementing the alternative allocation results in a slightly smaller estimate of the “EU benchmark”
economy’s Fiscal Imbalance because countries with the largest individual FI values receive smaller
weights.
This terminology is adopted for lack of a better one. Obviously, generational policy is also
influenced by changing budget allocations - and not just by changing the age-gender distributions of
particular taxes and transfers. Additional information is available from the author upon request.
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