Zur politischen Ökonomie der föderalen Finanzbeziehungen in Deutschland

Over the past 50 years revenue sharing and intergovernmental grants between the central government and the states have become increasingly important in the Federal Republic of Germany. Although this system is shown to be highly inefficient no serious attempts to reform can be observed yet. This paper examines the institutional mechanisms underlying the centralization process in Germany. It is argued that the erosion of competitive elements of Germany’s fiscal constitution can be explained by a common interest of federal and state politicians to establish a fiscal cartel. Furthermore, the system of intergovernmental grants softens the states’ budget constraints, and democratic control of governments at both levels is weakened by non-transparent rules of the Laenderfinanzausgleich. Despite a latent instability of the fiscal cartel, due to distributional struggles for tax revenues between the Laender and the federal government, we conclude that a far-reaching reform of intergovernmental fiscal relations in Germany cannot be expected.