The goal of this paper is to quantify fiscal integration as a process by introducing a large number of variables found in the now-large literature on the subject, in order to obtain a larger overview of the process and its evolution. For our analysis, we’ve chosen two known groups of countries: the European Union and the Eurozone. While most authors (especially those from other continents) tend to believe that these two regions are highly integrated, things aren’t always quite as they seem.
In order to capture the large fiscal integration process and to provide a higher degree of accuracy our analysis includes 22 variables that are key components or determinants of the fiscal integration process and of a fiscal union, including fiscal rules, supervision institutions, tax rates, common fiscal policies and many others. We assigned each variable an equal importance factor (0.05) mainly because all variables have a significant influence on the process, some of them being to a certain point interrelated.
Our key hypothesis is that the Eurozone should obtain a higher score than the European Union, a fact which we confirmed. While the EU scored 2.8 on our scale, with a maximum score of 4.4 that could have been obtained, the Eurozone scored 3.15, the difference being related mainly to the monetary union and its features.
Nevertheless, these are still reduced scores, neither the EU or the euro area qualifying as class A regions, that are almost or fully integrated. Europeans still have some work to be done before the formation of a fiscal union, either by continuing the fiscal integration process, or by developing new grounds for deeper political collaboration, as a means to reach faster and more efficiently profound fiscal arrangements.