Federal state reform and the future of the financial constitution

The reform of fiscal federalism in Germany enacted in 2006 has focussed on separating the joint legislation process between the federal government and the States (Laender). The German commission on the reform of federalism is now disputing about further reforms in order to establish a more competiti...

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Bibliographic Details
Published in:Zeitschrift für Wirtschaftspolitik 2007-01, Vol.56 (3), p.339-361
Main Author: Kitterer, Wolfgang
Format: Article
Language:ger
Subjects:
Federal states
Financial administration
Fiscal federalism
Germany
Institutions
Legislation
Reform
Regulation
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Summary:The reform of fiscal federalism in Germany enacted in 2006 has focussed on separating the joint legislation process between the federal government and the States (Laender). The German commission on the reform of federalism is now disputing about further reforms in order to establish a more competitive fiscal system. In this paper we discuss some institutional arrangements minimizing tax sharing between different layers of government and strengthening tax autonomy of the sub-central governments. Furthermore, a reform of the inter-state tax equalization system is proposed which provides more transparency and more incentives to the States to raise their own economic performance and tax base. Finally, as the constitutional borrowing constraints provide no credible enforcement mechanism and as decentralized fiscal policy cannot be effective the States should be bound to balanced budgets and rainy day funds. Only central government should be responsible for stabilization policy. Reprinted by permission of Lucius and Lucius Verlagsgesellschaft
ISSN:0721-3808