Fiscal equalization as a driver of tax increases: empirical evidence from Germany

Artikel

This paper exploits the devolution of taxing powers in the German federation to study the effects of fiscal equalization on subnational governments’ tax policy. Based on an analysis of the system of fiscal equalization transfers, we argue that the redistribution of revenues provides incentives for states to raise rather than to lower their tax rates. The empirical analysis exploits differences in fiscal redistribution among the states and over time. Using a comprehensive simulation model, the paper computes the tax-policy incentives faced by each state over the years and explores their empirical effects on tax policy. The results support a robust and strong incentive effect that works through the tax-base. When facing full equalization, a state is predicted to set the rate of the real estate transfer tax at about 1.3 percentage points higher than without. Our analysis also shows that the incentive to raise tax rates has proliferated because individual states’ decisions to raise their tax rates have intensified fiscal redistribution over time.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: International Tax and Public Finance ; ISSN: 1573-6970 ; Volume: 28 ; Year: 2020 ; Issue: 1 ; Pages: 90-112 ; New York, NY: Springer US

Classification and Topics

• Classification: Recht ; Taxation, Subsidies, and Revenue: General ; Tax Evasion and Avoidance ; Production Analysis and Firm Location: Government Policy
• Subject: Fiscal equalization ; Tax autonomy ; Real estate transfer tax ; Tax capacity ; Standard tax rate

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Buettner, Thiess ; Krause, Manuela
• Event: Veröffentlichung
• (who): Springer US
• (where): New York, NY
• (when): 2020

Further information

• DOI: doi:10.1007/s10797-020-09610-9
• Last update: 10.03.2025, 11:43 AM CET