Fiscal systems and fiscal union historical variety and policy challenges

Criticism of over-reliance on monetary policy in the Eurozone, particularly Quantitative Easing, at the expense of fiscal policy responses, has been widespread. Although the reasons for this vary globally, in the Eurozone the constraint is constitutional. Moreover, while the ECB is taken as neutral and above the political process, fiscal policy is determined by the sensibilities of the national median voter, who have been forced to accept austerity. This chapter argues that the variety in European fiscal systems presents a significant structural challenge to fiscal union, even if the terms of the fiscal union are meant to preserve national autonomy in this regard and focus instead on outcomes. Such variation has created and will continue to create opportunities for legal and tax arbitrage, of which some are predictable and some are the unexpected consequences of ad hoc solutions in moments of crisis. Finally, the chapter elaborates the political economy of taxation within the Eurozone, with special attention to the ideological contexts for the different fiscal mixes. Consensus, while not impossible, is much harder to attain when these contexts are persistently ignored, and, even more alarmingly, when the politics of comprehensive austerity across the Eurozone does violence to the specificity of particular tax systems.