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Regional risksharing and redistribution in the German federation

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  • von Hagen, Jürgen
  • Hepp, Ralf

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

  • von Hagen, Jürgen & Hepp, Ralf, 2000. "Regional risksharing and redistribution in the German federation," ZEI Working Papers B 15-2000, University of Bonn, ZEI - Center for European Integration Studies.
  • Handle: RePEc:zbw:zeiwps:b152000
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    Keywords

    Regional Risk-sharing; Fiscal Federalism; Monetary Union;

    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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