Towards fiscalization of the European Union? : the US and EU fiscal unions in a comparative historical perspective

Abstract

This paper shows that the emergence of the federal power to tax is the result of a sovereign debt crisis at the state level. I analyse the fiscal history of the early United States (US) to demonstrate how the institutional flaws of the Articles of Confederation, mainly the central budget based on contributions from the states, so-called 'requisitions', led to a sovereign debt crisis on the state level, which triggered taxpayers' revolts in 1786/1787. This social unrest, in turn, was perceived by the political élite as an endogenous threat to the union and paved the way for the fiscalization of the federal government, i.e. the creation of a genuine fiscal union with the federal power to tax based firmly in the Constitution of 1789. This analysis is complemented with lessons for the European Union (EU) on how to handle such a debt crisis if the union is to be preserved.