A comparative analysis of the redistributive and incentive effects of fiscal equalization schemes
(PhD project)


Fiscal transfers constitute one of the most important revenue sources of local governments in Germany. Many municipalities would be unable to fulfil their tasks without these revenues. But despite their high relevance within the system of local public finances, fiscal transfers are a minor issue in academic debates in Germany. Thus, there are hardly comparative empirical studies on the fiscal equalization schemes (FES) of the German Länder and their effects.

Against this background the phD project conducted an analysis of the FES of the German Länder from a comparative perspective. The principal aim was to identify the allocative, redistributive and incentive effects of the different FES and their repercussions on local government finances, especially on the local business tax.

Results show that the FES strongly increase the endowment of local governments with fiscal resources. Consequently, fiscal transfers do not only have a supplementary role with regard to local government finances anymore. Instead they became a central pillar of the system of local public finances. Moreover, the FES significantly reduce discrepancies in revenues between municipalities and lead to a more even distribution of fiscal capacities compared to the original revenue distribution. Furthermore, the contribution of the FES to a stabilization of municipal revenues and a reduction of the procyclicality of the local revenue base is limited. Finally, the results show that the FES exhibit negative tax incentive effects due to the existence of high marginal contribution rates. If local governments generate additional revenues, a large share will be absorbed by the FES. However, only limited evidence for potential repercussions of these incentive effects on local tax rates is found. Instead, statistical analyses indicate that local tax policy is mainly driven by socioeconomic, socio-structural and fiscal factors. Moreover, effects of political context factors could not be identified.


Christian Person (2018). Fiskalische Rückwirkungen kommunaler Finanzausgleichssysteme auf die Gemeindefinanzen. Dissertation an der Universität Konstanz.