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Horizontal fiscal imbalance in Germany

Author

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  • Pawel Kowalik

Abstract

Regional inequalities are currently a challenge for the majority of the countries, in particular the large ones. The problem of public income redistribution emerges due to possible differentiation of the economic development level of territorial units. The most often considered problem is the vertical distribution. The horizontal division of income is far less frequently considered. Horizontal fiscal imbalance or regional tax inequalities seem to be graver than the vertical imbalance, particularly in developing countries. The public finance system, in particular in federations, is often very complex. Public finance of federations and federated states are not often based on the same assumptions. This leads to differences among regions, both vertical and horizontal. The use of the presented measures helps identify those differences and permits developing mechanisms equalising those inequalities. It should be remembered that those measures may have certain drawbacks, and they mainly focus on certain specific values of income redistribution. Thereby several measures should be applied in measurements and the obtained results should be compared. There are no up-to-date measurements and comparisons of horizontal fiscal imbalance among countries. The aim of this paper is to measure horizontal fiscal imbalance in Germany, especially after reunification, which represents one of two models of federalism. At the beginning it shows the static and dynamic measurements presented in the literature that can be used to measure the horizontal fiscal imbalance. And then it is followed by the results of calculations for Germany in the period 1970-2013. As expected, horizontal imbalance was much lower before than after the reunification of Germany. After the reunification there were large disparities between "old" and "new" lander. This imbalance is gradually reduced. In comparison with the results obtained for the USA [Kowalik 2014, pp. 144-148] it can be said that in Germany the disparities are much smaller between lander than in the United States between the individual states.

Suggested Citation

  • Pawel Kowalik, 2015. "Horizontal fiscal imbalance in Germany," Business and Economic Horizons (BEH), Prague Development Center, vol. 11(1), pages 1-13, April.
    • Handle: RePEc:pdc:jrnbeh:v:11:y:2015:i:1:p:1-13
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    Citations

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    Cited by:

    1. Presiana Nenkova, 2019. "An Analysis of Equalizing Capacity of State Transfers for Local Government Activities in Bulgaria," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 627-640, December.
    2. Mihaela Onofrei & Ionel Bostan & Elena Cigu & Anca Florentina Vatamanu, 2023. "Ensuring Budgetary Resources at the Level of Local Communities in the Current Social-Economic Context: Evidence for Romanian Municipalities," Economies, MDPI, vol. 11(1), pages 1-16, January.

    More about this item

    Keywords

    Fiscal imbalance; fiscal gap; measures of horizontal inequalities; horizontal fiscal imbalance; convergence; divergence; intergovernmental relations; Germany;
    All these keywords.

    JEL classification:

    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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