EU budget: Directions for Reform The Case of Structural Policy Indhira Santos, Bruegel May 30th, 2008, Budapest, Hungary « The Future of the EU Budget »

Structural policies have two explicit goals… Foster growth Reduce regional disparities Twin objectives of SF The balance between the two goals has changed over time with increasing attention being paid to Lisbon (growth and innovation) and Gothenburg (sustainable development) objectives.

But these goals are intertwined… ObjectivesFinancial Instruments Regional Competitiveness and Employment ERDF ESF ConvergenceERDF ESF European Territorial CooperationERDF …leading to inefficiency

We try to answer two questions… 1. Do Structural Funds maximise EU growth? 2. What type of redistribution do Structural Funds achieve?

Do Structural Funds maximise EU growth? SF are not allocated to regions with the highest return to capital… Source: Bruegel, based DG Regio, National Strategic Reference Programmes, Eurostat and Caselli and Feyrer (2007)

Redistribution through SF: at what level?  Across countries  Within countries, through: –‘Inter-regional redistribution’, related to the funds received by a region but financed by some other region(s) in the same member state. –‘Intra-regional redistribution’, equal to the SF benefits received by a region but financed by taxpayers in that same region.

But within countries, most of the redistribution takes place inside regions! Source: Bruegel, based DG Regio, National Strategic Reference Programmes and Eurostat

A large proportion of the redistribution through SF takes place within regions Source: Bruegel, based DG Regio, National Strategic Reference Programmes and Eurostat

Main Conclusions 1)SF are not allocated efficiently, meaning that resources are not being spent in a way that optimizes their potential to generate EU-wide growth; and 2) Regions themselves pay for large part of the SF they receive, limiting the extent of actual inter-regional redistribution that takes place.

Policy Lessons 1.Rationalise objectives and find the right level -EU growth -Cross-country vs. within-country redistribution 2.Improve matching of goals and instruments - One-to-one correspondence of goals and instruments Recommendations 1.EU convergence policy should focus on countries instead of regions 2.Separate funds that aim at fostering growth from those that redistribute income across countries

EU budget: Directions for Reform The Case of Structural Policy Indhira Santos, Bruegel May 30th, 2008, Budapest, Hungary « The Future of the EU Budget »