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We study fiscal spending by supranational unions, where participation is voluntary and countries bargain over contributions to and the allocation of a central budget. We explore the link between the allocation and nations' contributions that occurs since bargaining power is endogenous, and generically causes inefficiency. Interestingly, redistribution arises endogenously, despite nations being purely self-interested. However, there exists a trade-off between increasing equality and decreasing efficiency, which becomes more severe as the centralized budget increases. We also analyze partial ex-ante commitment through alternative decision-making institutions: Both majority rule and exogenous tax rules can improve efficiency.

We study fiscal spending by supranational unions, where participation is voluntary and countries bargain over contributions to and the allocation of a central budget. We explore the link between the allocation and nations' contributions that occurs since bargaining power is endogenous, and generically causes inefficiency. Interestingly, redistribution arises endogenously, despite nations being purely self-interested. However, there exists a trade-off between increasing equality and decreasing efficiency, which becomes more severe as the centralized budget increases. We also analyze partial ex-ante commitment through alternative decision-making institutions: Both majority rule and exogenous tax rules can improve efficiency.

We study fiscal spending by supranational unions, where participation is voluntary and countries bargain over contributions to and the allocation of a central budget. Since decisions are made by unanimity, bargaining power over the allocation becomes a function of contributions, which generically causes inefficiency in the presence of income asymmetry between member nations. This link between the budget allocation and contributions explains patterns of inefficient spending in the EU, e.g. why resources are diverted to low‐productivity projects in high‐income countries: the option of veto creates a trade‐off between efficiency on the contributions margin and efficiency on the allocation margin.

We use a novel approach to address the question of whether a union of sovereign countries can efficiently raise and allocate a budget, even when members are purely self-interested and participation is voluntary. The main innovation of our model is to explore the link between budget contributions and allocation that arises when countries bargain over union outcomes. This link stems from the distribution of bargaining power being endogenously determined. Generically, it follows that unstructured bargaining gives an inefficient result. We find, however, that efficiency is achieved with fully homogenous countries, and when countries have similar incomes and the union budget is small. Moreover, some redistribution arises endogenously, even though nations are purely self-interested and not forced to participate in the union. A larger union budget, however, entails a trade-off between equality and efficiency. We also analyze alternative institutions and find that majority rule can improve efficiency if nations who prefer projects with high public good spillovers are endogenously selected to the majority coalition. Exogenous tax rules, such as the linear tax rule in the EU, which is designed to increase efficiency on the contribution margin, can also improve overall efficiency despite decreasing the efficiency of the allocation of funds.

We use a novel approach to address the question of whether a union of sovereign countries can efficiently raise and allocate a budget, even when members are purely self-interested and participation is voluntary. The main innovation of our model is to explore the link between budget contributions and allocation that arises when countries bargain over union outcomes. This link stems from the distribution of bargaining power being endogenously determined. Generically, it follows that unstructured bargaining gives an inefficient result. We find, however, that efficiency is achieved with fully homogenous countries, and when countries have similar incomes and the union budget is small. Moreover, some redistribution arises endogenously, even though nations are purely self-interested and not forced to participate in the union. A larger union budget, however, entails a tradeoff between equality and efficiency. We also analyze alternative institutions and find that majority rule can improve efficiency if nations who prefer projects with high public good spillovers are endogenously selected to the majority coalition. Exogenous tax rules, such as the linear tax rule in the EU, which is designed to increase efficiency on the contribution margin, can also improve overall efficiency despite decreasing the efficiency of the allocation of funds. ; Wir nutzen einen neuen Ansatz um der Frage nachzugehen, ob eine Union aus souveränen Staaten effizient ein Budget erheben und verteilen kann, auch wenn alle Mitgliedstaaten ausschließlich ihren Eigennutzen maximieren und die Mitgliedschaft freiwillig ist. Die Hauptneuerung unseres Modells ist die Erforschung des Zusammenhanges zwischen Beiträgen zum gemeinsamen Budget einerseits und dessen Allokation andererseits, der aus dem Verhandlungsprozess resultiert. Dieser Zusammenhang entsteht, da die Verteilung relativer Verhandlungsmacht endogen ist. Das bewirkt, dass ein unstrukturierter Verhandlungsprozess fast immer zu ineffizienten Resultaten führt. Ausnahmen ergeben sich wenn alle Staaten homogen sind, sowie wenn die nationalen Einkommen ähnlich und das gemeinsame Unionsbudget vergleichsweise gering sind. Darüber hinaus zeigen wir, dass ein gewisses Maß an Umverteilung entsteht, obwohl alle Staaten ausschließlich eigennützig handeln und freiwillig teilnehmen. Mit einem wachsenden Budget ergibt sich allerdings ein Konflikt zwischen Gleichheit und Effizienz. Desweiteren analysieren wir alternative Institutionen und zeigen dass ein Mehrheitsprinzip effizienzsteigernd sein kann, sofern die Staaten welche Projekte mit dem höchsten Gemeinnutzen bevorzugen eine Mehrheitskoalition bilden. Exogen bestimmte Beitragssätze, wie etwa die proportionale Steuerregel in der EU, welche zur Steigerung der Effizienz auf der Abgabeseite eingeführt wurde, können ebenfalls insgesamt vorteilhaft sein, obwohl gleichzeitig die Effizienz der resultierenden Mittelverteilung sinkt.

We use a novel approach to address the question of whether a union of sovereign countries can efficiently raise and allocate a budget, even when members are purely self-interested and participation is voluntary. The main innovation of our model is to explore the link between budget contributions and allocation that arises when countries bargain over union outcomes. This link stems from the distribution of bargaining power being endogenously determined. Generically, it follows that unstructured bargaining gives an inefficient result. We find, however, that efficiency is achieved with fully homogenous countries, and when countries have similar incomes and the union budget is small. Moreover, some redistribution arises endogenously, even though nations are purely self-interested and not forced to participate in the union. A larger union budget, however, entails a tradeoff between equality and efficiency. We also analyze alternative institutions and find that majority rule can improve efficiency if nations who prefer projects with high public good spillovers are endogenously selected to the majority coalition. Exogenous tax rules, such as the linear tax rule in the EU, which is designed to increase efficiency on the contribution margin, can also improve overall efficiency despite decreasing the efficiency of the allocation of funds. (author's abstract)

First published online 29 May 2007 ; European citizenship is a nested membership in a multilevel polity that operates at member state and union levels. A normative theory of supranational citizenship will necessarily be informed by the EU as the only present case and will be addressed to the EU in most of its prescriptions, but should still develop a model sufficiently general to potentially apply to other regional unions as well. The Article first describes three basic characteristics of such a polity - democratic representation at the supranational level, internal freedom of movement between member states, and regional limits to external geographic expansion - and argues that a multiplication of such regional unions would contribute to a more just and peaceful international order Building on this modification of Kant's model for a global confederation of republics, the contribution explores three alternative approaches for strengthening democratic citizenship in the European Union: a statist approach that aims at transforming the EU into a federal state, a unionist approach whose goal is to strengthen union citizenship vis-ii-vis member state nationality, and a pluralist one that specifies citizenship norms for each level and balances them with each other on the basis of the current state offederal integration. These approaches are then compared with regard to their implications for three policy questions: (1) general status differences and inequality of rights amongst EU citizens living in their country of nationality, EU citizens residing in other member states, third-country nationals, and EU citizens residing outside the territory of the Union; (2) voting rights in European, national, and local elections; and (3) access to Union citizenship and to member state nationality.