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Abstract

Almost from the beginning of the Federal Republic of Germany in 1949, a sophisticated horizontal equalization mechanism with strong equalizing effects has existed between its states (Länder). Its historical and social background is shown briefly, and the equalization procedure, which compares the revenue potential of each state with a rough measure of its fiscal need, is described in detail. The far-reaching equalization of state revenues that results is evaluated under distributional objectives and above all on allocative grounds: There are few incentives for states to care for their own tax base, particularly because states have no tax-rate authority which would enable them to vary their revenues from own sources.

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Fiscal Equalization between States in West Germany

Abstract

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