Financial equalization of German federal states : a key German domestic political issue of the turn of the millennium
Abstract
The monograph describes one of the most important elements of the German financial system, which has been in place since 1950s. The fiscal equalization exists in the form of redistribution of tax revenue (individual and corporate income tax and turnover tax) primarily according to the size of the population in each German state.
It takes place vertically between the federation and individual states and simultaneously horizontally among states themselves. Since the amount of money, which the rich states have to pass on to the poorer states, is enormous, the financial equalization became one of the main topics of German domestic politics.
The controversy escalated in 1998 when three of the main contributors challenged the system because of its alleged unconstitutionality. This monograph aims to answer the following questions: How did the negotiations surrounding the payment regime unfold? What were their financial consequences and which party to the talks could be labeled as winner?