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This study analyses the extent of fiscal risk sharing and redistribution for Austria from 2000 to 2019. Overall, fiscal policy smooths about one tenth of regional GDP shocks. While this is primarily driven by the federal budget and social security funds, there is also a significant contribution of the revenue sharing scheme between the federal government and subnational governments. Most interestingly, the case of the Austrian revenue sharing system shows that there are intergovernmental transfer schemes which achieve risk sharing without much redistribution. This is due to mechanisms within this system which grant high-income states shares in federal revenue which are higher than their respective population shares. Furthermore, due to other mechanisms, the Austrian fiscal system is overall highly redistributive between states, but net contributions vary substantially over time.

This paper presents a framework for analysing the evolution of the structural government deficit estimated using the official EU methodology relevant for the Stability and Growth Pact. The focus of our framework lies in the analysis of the main driving forces of changes in estimated structural government revenue, including the impact of changes to tax legislation, fiscal drag (caused e.g. by the non-indexation of income tax brackets), the composition of economic growth, and a residual. This approach allows us to scrutinise estimates of discretionary revenue measures and fiscal elasticities, both of which play a crucial role in the current EU fiscal governance framework. Between 2010 and 2018, Germany's structural revenue ratio increased substantially even though the estimated impact of changes to tax legislation was close to zero. In most other larger euro area countries, by contrast, structural revenue performed worse than could have been expected based on the estimated impact of discretionary revenue measures. Our approach shows that the composition of economic growth was unfavorable for generating revenue in all analysed countries over this time span. Moreover, in most countries actual revenue grew by less than what could have been expected in view of the discretionary measures taken and developments in the macroeconomic aggregates used to approximate tax bases.

After the financial and economic crisis in Europe, a broad consensus has emerged that a stronger fiscal dimension may be needed to complete the architecture of Economic and Monetary Union (EMU). This paper analyses the performance of interregional transfers in existing fiscal-federal systems, notably in Austria, Belgium, Germany, Spain and the United States, and aims to draw lessons for the design of a euro area fiscal instrument. The empirical risk-sharing analysis in this paper suggests that effective cross-regional stabilisation of asymmetric shocks tends to work via direct cash transfers to households, such as unemployment benefits, which are financed out of cyclical central government taxes and social security contributions. This would suggest that a euro area budgetary instrument for stabilisation should be designed as a tool that enhances the automatic stabilisation capacity in the single currency area. At the same time, it seems important that a prospective central stabilisation instrument for the euro area would be integrated in an overall fiscal policy framework that ensures proper incentives for national policymakers.