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The Bavarian Municipal Fiscal Equalization Scheme: Emphasis on Equity Rather than Efficiency

Author

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  • Isabella Lehmann
  • Matthias Wrede

Abstract

Employing the approach of Albouy (2012), this paper evaluates the efficiency and equity of the municipal fiscal equalization scheme in the federal state of Bavaria in Germany. Calculating a measure reflecting the internalization of fiscal and real externalities by state grants, we conduct a regression analysis on variables describing efficiency and equity criteria. Because the fiscal equalization scheme redistributes revenues toward regions with low realized incomes and a larger population share of low-productivity residents, the scheme satisfies certain equity criteria. However, the fiscal equalization scheme likely does not internalize local public-good externalities and therefore hampers spatial efficiency.

Suggested Citation

  • Isabella Lehmann & Matthias Wrede, 2019. "The Bavarian Municipal Fiscal Equalization Scheme: Emphasis on Equity Rather than Efficiency," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 75(2), pages 127-151.
    • Handle: RePEc:mhr:finarc:urn:doi:10.1628/fa-2019-0004
    DOI: 10.1628/fa-2019-0004
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    Citations

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    Cited by:

    1. Sven Wardenburg & Thomas Brenner, 2020. "How to improve the quality of life in peripheral and lagging regions by policy measures? Examining the effects of two different policies in Germany," Journal of Regional Science, Wiley Blackwell, vol. 60(5), pages 1047-1073, November.
    2. Sven Wardenburg & Thomas Brenner, 2019. "The impact of place-based policies on perceived regional living conditions across German labor market regions. Examining the impacts on migration flows," Working Papers on Innovation and Space 2019-02, Philipps University Marburg, Department of Geography.

    More about this item

    Keywords

    municipal fiscal equalization scheme; spatial efficiency; equity; source-based and residence-based taxes; local public expenditure;
    All these keywords.

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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