Reform Options for German Federal Fiscal Equalisation

In the legislative period now beginning a new regulation will have to be negotiated to replace the fiscal equalisation law that is due to expire. Moreover, the Länder of Bavaria and Hessen have filed complaints that they see themselves at a disadvantage as donor Länder in the current fiscal equalisation scheme. The recipient Länder, in turn, point to the fact that a “uniformity of living standards” would no longer be guaranteed if the current regulations were no longer to apply. From a scientific point of view, there is also criticism of the lack of transparency and insufficient incentive effects aimed at increasing economic and taxation power. There are now a whole series of prominent proposals of how to reshape the financial relations between the federal government and the Länder. This issue of the ifo Schnelldienst focuses on this issue and presents a selection of these policy proposals. It also documents a conference held at the Dresden branch of the Ifo Institute on 9 October 2013 to mark the branch’s 20th anniversary entitled: “Reform options for German federal fiscal equalisation”.