The EU budget needs reform to better allocate functions between the EU and member states. The fiscal federalism theory suggests that redistribution and stabilization should be handled by the central government, while allocation of resources should be managed by national governments. However, the EU is not a traditional federation, so a more dynamic and flexible approach is needed. The EU must find a simple rule to guide its development and adjust government responsibilities as it integrates further. The EU may not necessarily become a full federation, but it requires a flexible plan for its future.