EU Cohesion Policy and Inter-regional Risk-sharing: First Evidence and Lessons Learned

We provide the first evidence of the role played by the Cohesion Policy in terms of insurance against income shocks affecting the EU regions. By following state-of-the-art modeling, we measured income risk-sharing among 270 NUTS-2 regions over two concluded programming periods (2000–2006 and 2007–2013), distinguishing across several sub-groups of regions characterized by different macroeconomic conditions, integration of markets, and regional levels of economic disadvantage. We found that, by and large, the income risk-sharing role of the EU Funds inflow is non-negligible and it becomes particularly relevant in the second programming period. Further, the Cohesion Policy exerted a significant and positive role in income stabilization after the Global Financial Crisis, the Sovereign Debt Crisis, and during negative phases of the business cycle, particularly for those regions lagging or belonging to less stable countries from the macroeconomic point of view (Less-Developed regions and Mediterranean EU). This novel evidence of the short-run stabilizing effect of the Cohesion Policy aims to contribute to the debate on the role of EU institutions in improving the capacity of regions to tackle economic shocks, which is particularly relevant at the launch of the Next Generation EU.