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Fiscal Capacity and Determining Structural Characteristics of the Eastern German Laender

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  • Alexander Eck
  • Carolin Fritzsche
  • Jan Kluge
  • Joachim Ragnitz
  • Felix Rösel

Abstract

East Germany exhibit low tax revenues per capita of only about 50 % of the German average. A study of the Dresden Branch of the Ifo Institute, commissioned by the Saxon State Ministry of Finance and the Thuringian Ministry of Finance, examines the sources of the disproportionately low fiscal capacity of the East German states. The authors show three different channels which cause lower tax revenues in East Germany. These are the deadlock GDP gap to the West German economy, federal tax law (tax progression, childcare allowance) and different rules in the breakdown of total tax revenue and GDP to the states. The authors conclude that the main sources of the disproportionately low fiscal capacity of East Germany cannot be addressed by the state level. This may justify fiscal transfers to East Germany even in future times.

Suggested Citation

  • Alexander Eck & Carolin Fritzsche & Jan Kluge & Joachim Ragnitz & Felix Rösel, 2015. "Fiscal Capacity and Determining Structural Characteristics of the Eastern German Laender," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 76, May.
    • Handle: RePEc:ces:ifodrs:76
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    3. David Bauer & Joachim Ragnitz & Christian Ochsner, 2018. "Strategies for the Best Equipment and Use of Funds after 2020," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 82, May.
    4. Thomas Lenk & Philipp Glinka, 2015. "Der bundesstaatliche Finanzausgleich – Zerlegung fragwürdig?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(24), pages 13-16, December.
    5. Carolin Fritzsche, 2018. "Analyzing the Efficiency of County Road Provision – Evidence from Eastern German Counties," ifo Working Paper Series 249, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    6. Reiner Haseloff & Thomas Lenk & Philipp Glinka & Berthold U. Wigger & Michael Thöne, 2015. "Solidarpakt Ost in der Kritik: Sollte die Wirtschaftsförderung Ost beendet werden?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(23), pages 03-14, December.
    7. Xenia Frei & Joachim Ragnitz & Felix Rösel, 2018. "Kosten kommunaler Leistungserstellung unter dem Einfluss von demografischem Wandel und Urbanisierung," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 80, May.
    8. Felix Rösel, 2016. "Gibt es Einspareffekte durch Kreisgebietsreformen? – Evidenz aus Ostdeutschland," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(22), pages 26-33, November.

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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