The German Financial Equalisation System: Taking Account of Differences in Governmental Purchasing Powers

Posted: 20 May 2014 Last revised: 24 Jul 2014

See all articles by Jochen Zimmer

Jochen Zimmer

Goethe University Frankfurt - Faculty of Economics and Business Administration; Deutsche Bundesbank

Date Written: July 7, 2014

Abstract

This paper looks at a reform proposal for the fiscal transfer system in Germany to take account of differences in governmental purchasing powers across states. Since data on differences in governmental purchasing power is missing for the states, differences in intergovernmental purchasing power are proxied by disparities in regional purchasing power in the private sector. Two different reform proposals for a modified transfer system are examined. The first one extends the current fiscal transfer system by additionally allowing for disparities in governmental purchasing powers across states; the second one links fiscal transfer payments entirely to disparities in governmental purchasing power across states. Simulating the modified fiscal transfer systems would yield a wide spectrum of financial consequences.

Keywords: financial equalisation system, regional public finances, purchasing power

JEL Classification: H77, H40

Suggested Citation

Zimmer, Jochen, The German Financial Equalisation System: Taking Account of Differences in Governmental Purchasing Powers (July 7, 2014). Available at SSRN: https://ssrn.com/abstract=2438834 or http://dx.doi.org/10.2139/ssrn.2438834

Jochen Zimmer (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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