Sustainability-oriented future EU funding: a financial transaction tax

Although responsibility for realising the Europe 2020 strategy is shared between the EU and its 28 member countries, the main criticism of the current EU budget relates to the lack of a link between the budget and the Europe 2020 strategy. Therefore the paper focuses on a new budget design as well as alternative revenue sources. One of the possible candidates is a financial transaction tax (FTT). To study the FTT revenue potential, a model based on a remittance system was designed. We analyse full or partial replacement of VAT- and GNI-based own resources by the transfer of tax revenues from a FTT raised on the national level to the EU budget. The research reveals that FTT-based own resource would be able to fully replace GNI-based own resources only for some EU member countries; however, VAT-based own resources can be fully replaced by a FTT-based own resources for the entire EU. Further, results also show that from the EU 11 as well as from the EU 28 perspective, the tax is sufficient to fully replace VAT- or GNI-contributions if levied on the EU 11 or EU 28 level, respectively (not on the national level) as a direct payment to the EU budget without tracking the source member country.