International Cost-Shifting and Political Strategy

UK Bill

The British taxpayer just got an unpleasant surprise. The EU obligates member states with stronger economies to pay more of the EU’s budget than do members who have weaker economies. Having crunched a bunch of revised current and past economic figures, the green eyeshade wearers in Brussels have announced that some countries are due money back and others must pony up more. As the above chart shows, many countries are affected, but most of the action can be summed up simply: The Brits are being touched for over 2 billion Euros, which will fund hefty rebates for the French and Germans.

Whether the revised economic figures are more accurate than the early versions (which would mean Britain is simply being asked to make up for a getting an overly sweet deal in prior years) or whether they are less accurate (which would mean Britain is being mulcted) is beyond my ken. What I find more interesting is how European policy making might change if those who want the EU to be more centralized and powerful succeed in their wish to make equalization payments like these much larger and more frequent.

Politicians are always tempted to give voters more in services than they charge them in taxes, while sticking non-voters with the resulting debt (e.g., children and generations yet unborn). This can clearly work politically, but there is always a risk that voters will eventually notice how much their grandchildren are struggling and begin to hold the political class accountable. The perfect solution for this problem for integrity-free pols is to create international agreements such that the debt burden caused by undertaxation (or if you prefer, overspending) is shifted to people who will never be able to kick them out of office: Voters in other countries.

Imagine a EU centralizer’s dream world in which the equalization payments in question were 50 times what they are today. If you were running a country where the work week is capped at 35 hours, the retirement age is 60 and employees are only expected to come to work 26 weeks a year (the rest of the time, they would be on holiday or on strike), you would eventually be punished by the electorate for delivering little or no economic growth. But if you are in international equalization payment agreements with other countries in which cultural norms and labor rules are such that people work much harder and produce more economic growth, you might be more inclined to lower your own country’s retirement age or the number of allowed hours of work per week. Your own citizens would be happier, and your treasury would get a big check each year from other countries. And if the countries who are paying your bills are historical rivals of yours, so much the sweeter — perhaps even a vote winner if handled properly.

Chart courtesy of The Daily Mail

[Cross-posted at The Reality-Based Community]

Keith Humphreys

Keith Humphreys is a professor of psychiatry at Stanford University. He served as a senior policy advisor at the White House Office of National Drug Control Policy from 2009 to 2010.