Discussionpaper: “Skimming the Achieved? – Quantifying the Fiscal Incentives of the German Fiscal Equalization Scheme and its Reforms since 1970”

Marginal rates of contribution (MRC),i.e.,the rates at which additional revenuesare skimmed via larger contributions or lower transfer receipts,quantify the incentives of a fiscal equalization scheme. The present paper is the firstto calculate the marginal rates of contribution for the Laender (states) in the German fiscal equalization schemeforeach of the50 yearssince its establishmentin 1970 and over five major reforms, takinginto account all relevant revenues. Ourresults show thatMRChave been at a consistently high level. Until 2019 the scheme in-duced an almost full skimming of additional tax revenues of recipient states. With the system’s latest reform in 2020, MRC did increase further. Recipient states now face an over-skimming of additional tax revenues and thus, massivefiscal disincentives to maintaintheir own tax base. While thesefindings have been widely expected, comprehensive evidence has been missing so far.

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Yannick Bury, M. Sc.

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Prof. Dr. Dr. h. c. Lars P. Feld

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