BPEA | Spring 2017

Is Europe an optimal political area?

Alberto Alesina,
Alberto Alesina Nathaniel Ropes Professor of Political Economy - Harvard University
Guido Tabellini, and
Guido Tabellini Intesa Sanpaolo Chair in Political Economics - Bocconi University
Francesco Trebbi
Francesco Trebbi Professor of Economics - University of British Columbia

March 23, 2017

Employing a wide range of individual-level surveys, we study the extent of cultural and institutional heterogeneity within the EU and how this changed between 1980 and 2008. We present several novel empirical regularities that paint a complex picture. While Europe has experienced both systematic economic convergence and an increased coordination across national and subnational business cycles since 1980, this was not accompanied by cultural convergence among European citizens. Such persistent heterogeneity does not necessarily spell doom for further political integration, however. Compared to observed heterogeneity within member states themselves, or in well functioning federations such as the US, cultural diversity across EU members is a similar order of magnitude. The main stumbling block on the road to further political integration is not heterogeneity of tastes or of cultural traits, but other cleavages, such as parochial national identities.

In “Is Europe an optimal political area?” Harvard University’s Alberto Alesina, Bocconi University’s Guido Tabellini and University of British Columbia’s Francesco Trebbi examine 15 EU countries and Norway from 1980-2009 to determine if the so-called European political project was “too ambitious.”

The authors examine cultural differences among European citizens along fundamental dimensions such as trust, obedience, and religiosity, finding that European cultural differences are widening in spite of an increasingly more economically integrated Europe from the 1980-2009.

But this is not necessarily bad news, Alesina, Tabellini, and Trebbi write. The study finds that the EU does not have more cultural heterogeneity than any individual country in particular. Even compared to other functioning political unions outside the EU such as the U.S., the study finds similar levels of cultural variation.

“A comparison between the EU and the U.S. suggests that fundamental cultural differences amongst Americans and among Europeans have a similar order of magnitude. European countries do not seem significantly more different from each other than U.S. states. Perhaps the only contrast between these two continents is that, while in Europe geographically more distant people are marginally more different also in culture, geographic distance does not explain any of the U.S. cultural distance.”

The crucial stumbling block to European political integration may not be cultural diversity, but rather nationalism, which has been on the rise since even before the financial crisis: on average the percentage of respondents proud of their nationality has increased from 37 percent in the early 1980s to almost 50 percent in 2008-2009. An additional problem is that the difference between institutional quality in Northern Europe versus Southern Europe has increased, probably making the former group of countries worried about joining institutions with the latter.

The authors believe the EU is at a crossroads: It must choose between the benefit of economies of scale for environmental protection, immigration, terrorism, foreign policy, and promoting research and innovation versus the cost of rising nationalism. While a majority of Europeans seems to favor more EU-level decision-making, they seem dissatisfied with how those policies are being implemented and they disagree along national lines, Alesina, Tabellini, and Trebbi write.

This paper is part of the Spring 2017 edition of the Brookings Papers on Economic Activity, the leading conference series and journal in economics for timely, cutting-edge research about real-world policy issues. Research findings are presented in a clear and accessible style to maximize their impact on economic understanding and policymaking. The editors are Brookings Nonresident Senior Fellow and Northwestern University Economics Professor Janice Eberly and James Stock, Brookings Nonresident Senior Fellow and Harvard University economics professor. Read the rest of the articles here.

Disclosure: Guido Tabellini and Francesco Trebbi received financial support for this research from the Canadian Institute for Advanced Research. With the exception of the aforementioned affiliations, the authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. They are currently not an officer, director, or board member of any organization with an interest in this article.