Horizontal fiscal imbalance in Germany

Pawel Kowalik

Business and Economic Horizons (BEH), 2015, vol. 11, issue 1, 1-13

Abstract: Regional inequalities are currently a challenge for the majority of the countries, in particular the large ones. The problem of public income redistribution emerges due to possible differentiation of the economic development level of territorial units. The most often considered problem is the vertical distribution. The horizontal division of income is far less frequently considered. Horizontal fiscal imbalance or regional tax inequalities seem to be graver than the vertical imbalance, particularly in developing countries. The public finance system, in particular in federations, is often very complex. Public finance of federations and federated states are not often based on the same assumptions. This leads to differences among regions, both vertical and horizontal. The use of the presented measures helps identify those differences and permits developing mechanisms equalising those inequalities. It should be remembered that those measures may have certain drawbacks, and they mainly focus on certain specific values of income redistribution. Thereby several measures should be applied in measurements and the obtained results should be compared. There are no up-to-date measurements and comparisons of horizontal fiscal imbalance among countries. The aim of this paper is to measure horizontal fiscal imbalance in Germany, especially after reunification, which represents one of two models of federalism. At the beginning it shows the static and dynamic measurements presented in the literature that can be used to measure the horizontal fiscal imbalance. And then it is followed by the results of calculations for Germany in the period 1970-2013. As expected, horizontal imbalance was much lower before than after the reunification of Germany. After the reunification there were large disparities between "old" and "new" lander. This imbalance is gradually reduced. In comparison with the results obtained for the USA [Kowalik 2014, pp. 144-148] it can be said that in Germany the disparities are much smaller between lander than in the United States between the individual states.

Keywords: Fiscal imbalance; fiscal gap; measures of horizontal inequalities; horizontal fiscal imbalance; convergence; divergence; intergovernmental relations; Germany (search for similar items in EconPapers)
JEL-codes: H73 H77 O11 O18 O47 R12 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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