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Fiscal federalism and risk sharing in Germany: the role of size differences

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  • Konrad, Kai A.
  • Seitz, Helmut

Abstract

We study the effect of size differences for an optimal risk sharing system of intergovernmental transfers in Germany. The German fiscal transfer system should account for the fact that an optimal insurance mechanism has the property that smaller states contribute a smaller share of their tax revenue to the redistribution mechanism. -- Wir betrachten die Rolle von Größenunterschieden von Gebietskörperschaften für einen optimalen Risikoausgleich im Rahmen eines föderalen Finanzausgleichs in Deutschland. Zunächst wird der Spielraum für einen möglichen Risikoausgleich durch interregionale Ausgleichszahlungen zwischen Gebietskörperschaften in Deutschland analysiert. Es zeigt sich, dass unsystematische Risiken insbesondere aus längerfristigen Entwicklungsunterschieden bestehen. Für das optimale Transfersystem sollte angesichts möglicher Anreizwirkungen solcher Systeme gelten, dass homogene Gebietskörperschaften einen um so größeren Anteil ihres Steueraufkommens in das interregionale Transfersystem einbringen sollten, je größer sie sind.

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number FS IV 01-20.

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Date of creation: 2001
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Handle: RePEc:zbw:wzbmpg:fsiv0120

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Keywords: Fiscal federalism; risk sharing; size asymmetry;

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References

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  1. Richard A. Musgrave, 1961. "Approaches to a Fiscal Theory of Political Federalism," NBER Chapters, National Bureau of Economic Research, Inc, in: Public Finances: Needs, Sources, and Utilization, pages 97-134 National Bureau of Economic Research, Inc.
  2. Forni, Mario & Reichlin, Lucrezia, 1999. "Risk and potential insurance in Europe," European Economic Review, Elsevier, Elsevier, vol. 43(7), pages 1237-1256, June.
  3. Persson, Torsten & Tabellini, Guido, 1994. "Does centralization increase the size of government?," European Economic Review, Elsevier, Elsevier, vol. 38(3-4), pages 765-773, April.
  4. S. Bucovetsky, 1997. "Insurance and Incentive Effects of Transfers among Regions: Equity and Efficiency," International Tax and Public Finance, Springer, Springer, vol. 4(4), pages 463-483, November.
  5. Cornes, Richard C. & Silva, Emilson C. D., 2000. "Local Public Goods, Risk Sharing, and Private Information in Federal Systems," Journal of Urban Economics, Elsevier, vol. 47(1), pages 39-60, January.
  6. Massimo Bordignon & Paolo Manasse & Guido Tabellini, 2001. "Optimal Regional Redistribution under Asymmetric Information," American Economic Review, American Economic Association, American Economic Association, vol. 91(3), pages 709-723, June.
  7. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Moral Hazard," Econometrica, Econometric Society, Econometric Society, vol. 64(3), pages 623-46, May.
  8. Bucovetsky, Sam, 1998. "Federalism, equalization and risk aversion," Journal of Public Economics, Elsevier, Elsevier, vol. 67(3), pages 301-328, March.
  9. Lockwood, Ben, 1999. "Inter-regional insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 72(1), pages 1-37, April.
  10. Christian Baretti & Robert Fenge & Bernd Huber & Willi Leibfritz & Matthias Steinherr, 2000. "Chancen und Grenzen föderalen Wettbewerbs," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, number 1, 8.
  11. Persson, Torsten & Tabellini, Guido, 1996. "Federal Fiscal Constitutions: Risk Sharing and Redistribution," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(5), pages 979-1009, October.
  12. Lee, Kangoh, 1998. "Uncertain income and redistribution in a federal system," Journal of Public Economics, Elsevier, Elsevier, vol. 69(3), pages 413-433, September.
  13. Shavell, Steven, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(4), pages 541-62, November.
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Cited by:
  1. Robin Boadway, 2003. "The Theory and Practice of Equalization," Working Papers, Queen's University, Department of Economics 1016, Queen's University, Department of Economics.

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