Fiscal federalism and tax administration: Evidence from Germany

Arbeitspapier

In many federations, fiscal equalization schemes soften fiscal imbalances across the member states. Such schemes usually imply that the member states internalize only a small fraction of the additional tax revenue from an expansion of the state-specific tax bases, while the remainder of the additional tax revenue is redistributed horizontally or vertically. We address the question as to which extent state-level jurisdictions in such a federation underexploit their tax bases. By means of a stylized model we show that the state authorities in such a federation have incentives to align the effective tax rates of their residents to the internalized fraction of marginal tax revenue. We empirically test the model using three setups: one state level exercise and two micro level exercises using administrative income-tax data in form of an OLS regression and a natural-experiments design. All setups support the results from our theoretical model.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 1307

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Intergovernmental Relations; Federalism; Secession
• Subject: fiscal federalism ; taxation ; tax-back rate ; fiscal externalities

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bönke, Timm ; Jochimsen, Beate ; Schröder, Carsten
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/77092
• Last update: 10.03.2025, 11:42 AM CET