Incentive effects of the Länder fiscal equalisation scheme: Theoretical and empirical analysis

The stimulus effects of the Länder fiscal equalisation scheme is the subject of this study. Methodologically the analysis is based on a model of state behaviour as well as on econometric panel data models. The study examines the stimulus effects of the Länder fiscal equalisation on the policies of the Länder with respect to the efficiency of the tax administration, economic-policy efforts as well as public investments. All three areas are examined, first of all, for the effects of fiscal equalisation in the theoretical model. Then the theoretical results are subjected to an empirical examination. The study concludes by examining reform proposals of the fiscal equalisation system.