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"A Structural Model of Intra European Union Transfers With an application to the Eastern Enlargement"

George Deltas and Gregor Van Der beek


First Author :

George Deltas
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820

Second Author :

Gregor Van Der beek

Abstract :
We construct and estimate a stylized structural model of the European Unionís budget using recent profiles of the European Unionís expenditures and revenues. The model is tested (successfully) by assessing its ability to predict the effects of the 1995 enlargement on the European budget. We use the estimated model to predict the re-allocation of the Unionís expenditures and revenues after the Eastern enlargement. Our approach differs from that of most of the existing literature in that we fix the preferences for redistribution of resources among the Unionís members, rather than fix the current budgetary rules or modify them on the basis of assumed scenarios. Our estimates of transfers to the incoming member states exceed those of the rest of the literature. Our results can be interpreted in one of two ways: First, either the European Union, in its collective decision-making process (that in the future will include the five incoming countries as voting members), will institute new rules and programs to further reduce the regional disparities in income, or second, if the current rules and programs are maintained, then the Eastern enlargement would result in a reduction in the ďdepthĒ of the Union. The approach we introduce can be more generally applied to the analysis of other inter-governmental or international organizations.
Manuscript Received : 2001
Manuscript Published : 2001
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