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The European Union is currently negotiating its next budgetary package for 2014-2020, amid calls for reform, and criticisms that the EU budget is out of touch with the realities of today's EU. This thesis aims to contribute towards that debate, by proposing an innovative methodological framework to assess which policy areas and funding programmes should be allocated to the EU level. The methodology proposed is multidisciplinary, combining the branch of economics generally used to analyse the EU and its budget (known as fiscal federalism) with another branch of economics (public sector economics), political science and EU law. From these four disciplines, eleven steps are derived, and this eleven-step analysis is applied to the three main areas of EU spending to assess whether or not they should be funded by the EU budget: agriculture, regional policy and research policy. The need for a multidisciplinary methodology arises from the fact that the EU budget is not equivalent to a national budget, because the EU is essentially a legislative union, where spending powers have remained small and are mainly there to support the regulatory initiatives. Therefore a different type of analysis is needed to address not only the economic issues involved, but the political and legal aspects as well. The research question addressed by this thesis is therefore both normative and methodological. It seeks to answer to answer a normative question – how should the EU budget be spent – but also addresses a methodological puzzle – how to create a multidisciplinary methodological framework that can be used to define how the EU finances should be organised, by completing fiscal federalism with insights from other theories, thereby making it more suited to the analysis of the EU? The results of applying this methodology to the three main areas of EU spending are as follows. The analysis supports EU cohesion funding for poorer EU Member States, as this funding can potentially be very efficien

The European Commission is currently drafting a proposal for a review of the EU budget, which could lead to its most significant reform to date. This paper proposes a method for restructuring the EU budget, based on a multidisciplinary approach. The insights of public sector economics, fiscal federalism, political science and the literature on the concept of “subsidiarity” are combined to assess which policies should be funded by the EU budget, and by how much. The resulting four complementary analyses are brought together into an eight-step chart, which is used to analyze in detail one area of policymaking - education policies – to assess whether it should be funded by the EU budget. Extending the analysis to the budget as a whole, the paper finds that the EU budget should be shared into five areas, each corresponding to an EU objective: economic growth, sustainable development, convergence of the EU economies, external security and internal security.

The issue of What the EU Should Do, or what should be the competences of the European Union, is gaining more relevance with the increasing level of EU integration. The academic analysis on the competences of the EU has so far not fully answered this question. The political science literature has focused on the "democratic deficit" and lack of legitimacy of the EU, assuming that solving these problems would naturally lead to the correct allocation of competences. The economic literature on the contrary focuses on fiscal federalism, analysing which policies can be done more efficiently at the EU level, but ignoring whether it is seen as legitimate to reduce national sovereignty on those policies. This paper argues that only a combination of the two approaches can lead to useful results. It adapts the theory of fiscal federalism to the EU, by incorporating the concept of legitimacy into the analysis. Legitimacy is assessed through three factors proposed by the literature: normative justifiability, popular acceptability and accountability. The analysis is applied to different areas of policymaking. Results show that this modified form of fiscal federalism leads to more complete and realistic insights.