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Skimming the Achieved? ⸻ Quantifying the Fiscal Incentives of the German Fiscal Equalization Scheme and Its Reforms since 1970

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  • Yannick Bury
  • Lars P. Feld
  • Heiko T. Burret

Abstract

Marginal rates of contribution (MRC), i.e., the rates at which additional revenues are skimmed via larger contributions or lower transfer receipts, quantify the incentives of a fiscal equalization scheme. The present paper is the first to calculate marginal rates of contribution for the Laender (states) in the German fiscal equalization scheme for each of the 51 years since its establishment in 1970 and over five major reforms, taking into account all relevant revenues. Our results show that MRC have been at a consistently high level. Until 2019 the scheme induced an almost full skimming of additional tax revenues of recipient states. With the system’s latest reform in 2020, MRC increased further. Recipient states now face an over-skimming of additional tax revenues and thus, massive fiscal disincentives to maintain their own tax base. While these findings have been widely expected, comprehensive evidence has been missing so far.

Suggested Citation

  • Yannick Bury & Lars P. Feld & Heiko T. Burret, 2024. "Skimming the Achieved? ⸻ Quantifying the Fiscal Incentives of the German Fiscal Equalization Scheme and Its Reforms since 1970," CESifo Working Paper Series 11293, CESifo.
    • Handle: RePEc:ces:ceswps:_11293
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    More about this item

    Keywords

    fiscal equalization; marginal contribution rates; constitutional reform;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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