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In this paper we explore the impact of political factors on redistribution across the states in the German Landerfinanzausgleich. From a public choice perspective the smaller states are supposed to have a higher influence on decisions in the second legislative chamber due to a lower shadow price of their votes, which implies a higher bargaining power. As the federal government's policy depends on a majority in the second chamber there is an incentive to buy smaller states' votes. Controlling for GDP per capita, we find statistically significant support for our hypotheses. 3 Tables, 35 References. Adapted from the source document.

"The authors study the effect of size differences for an optimal risk sharing system of intergovernmental transfers in Germany. The German fiscal transfer system should account for the fact that an optimal insurance mechanism has the property that smaller states contribute a smaller share of their tax revenue to the redistribution mechanism." (author's abstract)

The paper examines the question how fiscally strong and fiscally weak states respond to taxing autonomy at the state level, a subject that is currently under debate in Germany where states do have virtually no power to tax. We use a simple theoretical model that incorporates state surtaxes on the federal income tax bill taking into account fixed costs as well as minimum standards for the provision of public services. We show that both factors work in the direction of forcing fiscally weak states to collect higher surtaxes as compared to fiscally strong states. The empirical section presents evidence on the importance of fixed costs at the state level and calculates the distributional effects of taxing autonomy taking feedbacks of the fiscal equalization system into account. In addition simple estimates of the importance of spending on minimum standards are derived.

German Fiscal Federalism is characterized by a high degree of fiscal equalization which lowers the efficiency of local tax administration. Currently, a reform of the fiscal equalization scheme is on the political agenda. One option is to grant federal states the right to raise surtaxes on statutory tax rates set by the central government in order to reduce the equalization rate. In such an environment, especially those federal states with lower economic performance would have to raise comparatively high surtaxes. With capital mobility, this could further lower economic performance and thus tax revenues. Although statutory tax rates are so far identical across German federal states, corporate tax burden differs for several reasons. This paper tries to identify the impact of such differences on firm location. As can be shown, effective corporate taxation did seemingly not have a significant impact on firm location across German federal states. ; Der deutsche Länderfinanzausgleich ist durch eine starke Nivellierung der Finanzkraft der Bundesländer gekennzeichnet. Dies geht mit negativen Anreizen für die Finanzverwaltungen der Bundesländer einher. Mit Blick auf das Auslaufen des Länderfinanzausgleichs im Jahr 2019 werden derzeit Reformoptionen diskutiert, unter anderem eine Erhöhung der Steuerautonomie der Bundesländer, in deren Rahmen den Ländern ein Zuschlagsrecht bei der Einkommensteuer eingeräumt und im Gegenzug der Ausgleichstarif im Länderfinanzausgleich verringert werden könnte. Eine derartige Reform würde jedoch bedeuten, dass gerade die finanzschwachen Bundesländer relativ hohe Zuschlagssätze erheben müssten, um ähnlich hohe Einnahmen je Einwohner zu erzielen wie die finanzstarken Länder. Sofern sich dies negativ auf die Unternehmensansiedlungen in finanzschwachen Bundesländern auswirkt, würde deren Finanzkraft weiter geschwächt. Vor diesem Hintergrund untersucht der vorliegende Beitrag, ob bereits bestehende Unterschiede in der effektiven Steuerlast zwischen den Bundesländern die Unternehmensansiedlung beeinflussen. Im Ergebnis zeigt sich, dass ein solcher Einfluss in den vergangenen Jahren nicht bestand.

This paper analyzes the welfare implications of a transfer mechanism in a fiscally decentralized economy where local governments select their tax collection effort to maximize their lifetime utility. We consider a transfer rule that both punishes for the lack of efficiency in tax-collection and compensates for the deviation of pre-tax or transfer income from a target level; in addition, a portion of transfers is considered to be directed towards investment. Simulations of the model's optimal solution reveal that increasing punishment always results in increased steady state effort, despite the disincentives that increasing income compensation or directed investment may generate. Increasing punishment also improves capital accumulation the lower the rate of directed investments and the lower the tax rate. Further, efficiency in tax collection is achieved the lower the rate of directed investment and the higher the punishment rate.

We provide estimates of the risk-sharing and redistributive properties of the German federal fiscal system based on data from 1970 to 2006, with special attention to the effects of German unification. Tax revenue sharing between the states and the federal government and the fiscal equalization mechanism (Landerfinanzausgleich) together reduce differences in per-capita state incomes by almost 40 percent. The federal fiscal system offsets 47 percent of an asymmetric shock to state per-capita incomes. This effect has significantly decreased after the inclusion of the East German states in 1995. Furthermore, we find that the German fiscal system provides almost perfect insurance for state government budgets against asymmetric revenue shocks; also, its redistributive effect with regard to the tax resources available to state governments is very strong. Adapted from the source document.

We provide empirical estimates of the risk-sharing and redistributive properties of the German federal from 1970 until 2006, with special attention to the effects of German fiscal system base unification. We find that tax revenue sharing between the states and the federal government and the fiscal equalization mechanism (Länderfinanzausgleich) together reduce differences in per-capita state incomes by 36.9 percent during period 1970 to 1994. After the full integration of East German states into the mechanism in 1995, the redistributive effects increase slightly to about 38.6 percent. With respect to the insurance effect of the German fiscal system, our results indicate that the federal fiscal system offsets 47 percent of an asymmetric shock to state per-capita incomes. This effect has significantly decreased after the inclusion of the East German states in 1995. Furthermore, we find that the German fiscal system provides almost perfect insurance for state government budgets against asymmetric revenue shocks; also, its redistributive effect with regard to the tax resources available to state governments is very strong.