Regional Risksharing and Redistribution in the German Federation

ZEI Working Paper No. B15-2000

31 Pages Posted: 13 Oct 2005

See all articles by Ralf Hepp

Ralf Hepp

Fordham University - Fordham College at Rose Hill

Jürgen von Hagen

University of Bonn - Institute of Economic Policy; Centre for Economic Policy Research (CEPR)

Date Written: September 2000

Abstract

We provide empirical estimates of the risksharing and redistributive properties of fiscal equalization among the states of the German federation. Fiscal equalization serves as a mechanism to insure state budgets against asymmetric revenue shocks, but provides almost no insurance against regional income shocks. Equalization responds only weakly to income differentials but strongly to tax revenue differentials across states. A further result is that the correlation of state tax revenues with state GDPs has declined over time. This may reflect a weakening in state tax efforts in response to the adverse incentive effects of fiscal equalization.

Keywords: Regional Risk-sharing, Fiscal Federalism, Monetary Union

JEL Classification: E42, E63, F33, F42

Suggested Citation

Hepp, Ralf and von Hagen, Jürgen, Regional Risksharing and Redistribution in the German Federation (September 2000). ZEI Working Paper No. B15-2000, Available at SSRN: https://ssrn.com/abstract=819684 or http://dx.doi.org/10.2139/ssrn.819684

Ralf Hepp (Contact Author)

Fordham University - Fordham College at Rose Hill ( email )

United States

Jürgen Von Hagen

University of Bonn - Institute of Economic Policy ( email )

Adenauerallee 24
D-53113 Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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