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Regional Risksharing and Redistribution in the German Federation

Author

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  • Hepp, Ralf
  • von Hagen, Jürgen

Abstract

We provide empirical estimates of the risksharing and redistributive properties of fiscal equalization among the states of the German federation. Fiscal equalization serves as a mechanism to insure state budgets against asymmetric revenue shocks, but provides almost no insurance against regional income shocks. Equalization responds only weakly to income differentials but strongly to tax revenue differentials across states. A further result is that the correlation of state tax revenues with state GDPs has declined over time. This may reflect a weakening in state tax efforts in response to the adverse incentive effects of fiscal equalization.

Suggested Citation

  • Hepp, Ralf & von Hagen, Jürgen, 2001. "Regional Risksharing and Redistribution in the German Federation," CEPR Discussion Papers 2662, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2662
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    Cited by:

    1. Jean, HINDRIKS & Susana , PERALTA & Sholmo , WEBER, 2005. "Fiscal competition, revenue sharing, and policy-induced agglomeration," Discussion Papers (ECON - Département des Sciences Economiques) 2005062, Université catholique de Louvain, Département des Sciences Economiques.
    2. Jonathan Rodden & Erik Wibbels, 2010. "Fiscal Decentralization And The Business Cycle: An Empirical Study Of Seven Federations," Economics and Politics, Wiley Blackwell, vol. 22(1), pages 37-67, March.
    3. Ralf Hepp & Jürgen von Hagen, 2013. "Interstate risk sharing in Germany: 1970--2006," Oxford Economic Papers, Oxford University Press, vol. 65(1), pages 1-24, January.
    4. Jean Hindriks & Susana Peralta & Shlomo Weber, 2014. "Local Taxation of Global Corporation: A Simple Solution," Annals of Economics and Statistics, GENES, issue 113-114, pages 37-65.
    5. repec:wfo:wstudy:25452 is not listed on IDEAS
    6. Heinemann, Friedrich & Janeba, Eckhard & Moessinger, Marc-Daniel & Schröder, Christoph, 2013. "Revenue Autonomy Preference in German State Parliaments," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79736, Verein für Socialpolitik / German Economic Association.
    7. Robin Boadway & Masayoshi Hayashi, 2004. "An Evaluation of the Stabilization Properties of Equalization in Canada," Canadian Public Policy, University of Toronto Press, vol. 30(1), pages 91-109, March.
    8. Nuria Bosch & Marta Espasa & Pilar Sorribas, 2002. "The redistributive, stabiliser and insurance effects at territorial level of "federal" government budgets," Working Papers 2002/5, Institut d'Economia de Barcelona (IEB).
    9. Pablo Sanguinetti & Martin Besfamille, 2004. "Exerting local tax effort or lobbying for central transfers?: Evidence from Argentina," Econometric Society 2004 Latin American Meetings 249, Econometric Society.
    10. Andersson, Linda, 2004. "Output Smoothing between Regions in Sweden," Umeå Economic Studies 643, Umeå University, Department of Economics.
    11. Tsai-Yuan Huang & Po-Chin Wu & Ching-Wen Yan, 2014. "Revisiting the redistribution effects of intergovernmental fiscal transfers: evidence from Taiwan," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 17(4), pages 341-359, December.
    12. Hindriks, Jean & Peralta, Susana & Weber, Shlomo, 2008. "Competing in taxes and investment under fiscal equalization," Journal of Public Economics, Elsevier, vol. 92(12), pages 2392-2402, December.
    13. Sanguinetti, Pablo & Tommasi, Mariano, 2004. "Intergovernmental transfers and fiscal behavior insurance versus aggregate discipline," Journal of International Economics, Elsevier, vol. 62(1), pages 149-170, January.
    14. Bird, Richard M. & Smart, Michael, 2002. "Intergovernmental Fiscal Transfers: International Lessons for Developing Countries," World Development, Elsevier, vol. 30(6), pages 899-912, June.
    15. repec:hpe:journl:y:2016:v:219:i:4:p:137-160 is not listed on IDEAS
    16. Mario Palazzo, 2005. "The Incomplete Federalism, The Excessive Fiscal Pressure, The Effects On Consumption," Quaderni DSEMS 16-2005, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
    17. Torben Dall Schmidt, 2008. "The cost of regional equity in Denmark: Goal attainment or incentive distortions," Papers in Regional Science, Wiley Blackwell, vol. 87(4), pages 567-587, November.
    18. Linda Andersson, 2008. "Fiscal Flows and Financial Markets: To What Extent Do They Provide Risk Sharing within Sweden?," Regional Studies, Taylor & Francis Journals, vol. 42(7), pages 1003-1011.
    19. Hansjörg Blöchliger & Claire Charbit, 2008. "Fiscal equalisation," OECD Journal: Economic Studies, OECD Publishing, vol. 2008(1), pages 1-22.
    20. Oistein Røisland, 2005. "Should Central Banks Care About Regional Imbalances?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 52(2), pages 242-260, May.
    21. Trien NGUYEN & Randall M. WIGLE, "undated". "The Skill Dimension of Labour Market Impacts of External Price Shocks: Numerical Calculations From a Canadian Regional Trade Model," EcoMod2009 21500071, EcoMod.
    22. Buettner, Thiess, 2009. "The contribution of equalization transfers to fiscal adjustment: Empirical results for German municipalities and a US-German comparison," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 417-431, September.
    23. Buettner, Thiess, 2002. "Fiscal federalism and interstate risk sharing: empirical evidence from Germany," Economics Letters, Elsevier, vol. 74(2), pages 195-202, January.
    24. Guillaume Bousquet & Christian Daude & Christine de la Maisonneuve, 2015. "Fiscal Decentralisation in Colombia: New Evidence Regarding Sustainability, Risk Sharing and “Fiscal Fatigue”," OECD Economics Department Working Papers 1202, OECD Publishing.

    More about this item

    Keywords

    Fiscal Federalism; Monetary Union; Regional Risk-Sharing;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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