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Regulating Government (´s Share): The Fifty-Percent Rule of the Federal Constitutional Court in Germany

Author

Listed:
  • Andreas, von Arnauld

    () (Helmut Schmidt University, Hamburg)

  • Zimmermann, Klaus W.

    () (Helmut Schmidt University, Hamburg)

Abstract

Some numbers in the political sphere seem to be chosen rather arbitrarily. One example might be the rule set out by the Second Senate of the German Federal Constitutional Court in 1995 that the overall tax load on assets must be limited to 50% of the yield on those assets. This rule was understood by many as a general principle for taxation. The article first sketches the socio-political climate under which the rule originated: a rise of neo-liberal thought met with the inability of the political institutions to reform the German welfare state with its ever-growing expenses. The Constitutional Court’s intervention is interpreted as a reaction to this stagnation in politics. An analysis from the perspective of Constitutional Law, however, reveals that the fifty-percent rule cannot be convincingly based on the German Basic Law, and instead must be seen as a political move of the Court. But this move did not follow an economic rationality, either; for an optimal government’s share can only be determined in relation to the economic performance of a country and not by fixing it generally at a maximum of 50% of GDP. The demise of the fifty-percent rule already began four years later. In 2006, finally, the Senate moved away from the individual rights-based approach of 1995 to a more general assessment, taking also into account an increasingly globalized tax competition. The reason for this clear-cut change in the Court’s juris-prudence can be found in a change of the socio-political and institutional parameters, thus witnessing to the effect of the political climate on court decisions. The analysis also shows that the rule was created and abandoned only on the basis of an "introverted" legal discussion, economic arguments hardly playing any role in the process. The new line of the Senate, however, might guarantee for a better integration of economic science into tax policy by exchanging fixed limits for a “discursive” model, demanding from the tax legislator better reasons for higher taxes.

Suggested Citation

  • Andreas, von Arnauld & Zimmermann, Klaus W., 2010. "Regulating Government (´s Share): The Fifty-Percent Rule of the Federal Constitutional Court in Germany," Working Paper 100/2010, Helmut Schmidt University, Hamburg.
  • Handle: RePEc:ris:vhsuwp:2010_100
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    References listed on IDEAS

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    1. Bergstrom, Theodore C & Goodman, Robert P, 1973. "Private Demands for Public Goods," American Economic Review, American Economic Association, pages 280-296.
    2. Alan T. Peacock & Jack Wiseman, 1961. "The Growth of Public Expenditure in the United Kingdom," NBER Books, National Bureau of Economic Research, Inc, number peac61-1.
    3. Klaus Zimmermann & Tobias Just, 2000. "Interest Groups, Referenda, and the Political Process: On the Efficiency of Direct Democracy," Constitutional Political Economy, Springer, pages 147-163.
    4. Frey, Bruno S, 1994. "Direct Democracy: Politico-economic Lessons from Swiss Experience," American Economic Review, American Economic Association, pages 338-342.
    5. Dluhosch Barbara & Zimmermann Klaus W., 2009. "Adolph Wagner und sein „Gesetz": Einige späte Anmerkungen," Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, De Gruyter, pages 209-226.
    6. Dluhosch Barbara & Zimmermann Klaus W., 2009. "Adolph Wagner und sein „Gesetz": Einige späte Anmerkungen," Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, De Gruyter, pages 209-226.
    7. Mussa, Michael, 1979. "The two-sector model in terms of its dual : A geometric exposition," Journal of International Economics, Elsevier, pages 513-526.
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    More about this item

    Keywords

    fifty-percent rule; constitutional decisions; optimal government’s share;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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