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On the political and fiscal determinants of income redistribution under federalism and democracy: evidence from Germany

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  • Helmut Herwartz

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  • Bernd Theilen

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Abstract

Several recent studies suggest that transfers from central to regional governments are motivated by political considerations. In this paper we examine if this is also the case for transfers from regional to central governments in the context of the German fiscal equalization system. We examine the factors that contribute to differences in tax revenues across German states. The evidence indicates that both fiscal incentives and political factors can explain these differences, although in Germany the former are more important. Moreover, accounting for fiscal institutions has important consequences for the empirical assessment of political influences on taxation. Overall we find that the political affiliation of the state governor is an important factor in explaining differences in state tax revenues. Thus, the right-wing party (CDU/CSU) is effective in relaxing the tax burden at the state level. In contrast, partisan alignment between the state government and the federal government loses its importance once fiscal conditions enter the empirical model. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Helmut Herwartz & Bernd Theilen, 2014. "On the political and fiscal determinants of income redistribution under federalism and democracy: evidence from Germany," Public Choice, Springer, vol. 159(1), pages 121-139, April.
  • Handle: RePEc:kap:pubcho:v:159:y:2014:i:1:p:121-139
    DOI: 10.1007/s11127-012-0031-0
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    File URL: http://hdl.handle.net/10.1007/s11127-012-0031-0
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Niklas Potrafke & Marina Riem & Christoph Schinke, 2016. "Debt Brakes in the German States: Governments’ Rhetoric and Actions," German Economic Review, Verein für Socialpolitik, vol. 17(2), pages 253-275, May.
    2. repec:bla:germec:v:18:y:2017:i:3:p:377-409 is not listed on IDEAS
    3. Manuela Krause & Niklas Potrafke, 2017. "The Real Estate Transfer Tax and Government Ideology: Evidence from the German States," CESifo Working Paper Series 6491, CESifo Group Munich.

    More about this item

    Keywords

    Intergovernmental transfers; Redistributive politics; Political alignment; D72; H71; H77;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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