The German Financial Equalisation System: Taking Account of Differences in Governmental Purchasing Powers
Posted: 20 May 2014 Last revised: 24 Jul 2014
Date Written: July 7, 2014
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: Suggested Citation