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Fiscal transfers and redistribution in the European Union: do smaller member states get more than their share?

Abstract In this article redistribution in the EU and fiscal transfers between member states are analysed. Which countries are beneficiaries, which are contributors, and what factors affect countries' net fiscal balances? Fiscal transfers among EU member states are partially explained by differences in the countries' economic prosperity, as well as by institutional features that favour smaller EU members. The budget is redistributive both on the revenue and on the expenditure side. Smaller member states can use their overrepresentation in the Council to obtain more benefits than their level of economic development alone would justify. Yet, this effect is not discernible on the revenue side of the budget. Overrepresented member states are not able to use their ‘extra’ voting power to reduce their share of EU costs. This finding is probably explained by the relatively simple rules that govern the financing of the budget.