Fiscal competition and European Union: contrasting perspectives

This paper has two objectives. First, it provides an overview of the vast literature on fiscal competition. A major theme is that the desirability of such competition depends in important ways on one's view of how the public sector works. This is a complex issue with some intriguing twists. Second, the paper explores the emerging structure of the public sector in the European Union in the presence of growing fiscal competition. From the perspective of traditional fiscal federalism, this structure may be ill-suited to performing two of the traditional tasks of public finance: support for the poor and macroeconomic stabilization. (C) 2001 Elsevier Science B.V. All rights reserved.