Reform of the German fiscal equalisation scheme

In a November 1999 decision, the German Constitutional Court called for new and clear regulations of the fiscal equalisation scheme. Since then, all parties involved have been struggling for a workable compromise. The Länder that are net contributors complain that levies on their tax revenues are too high and insist on changes in the current equalisation system. Prof. Wolfgang Scherf, University of Gießen, supports this view and presents a model "that links the advantages of a simple, linear equalisation rate with the goal of a guaranteed minimum financial strength in a way that creates economic incentives for the Länder". According to Prof. Wolfgang Kitterer, University of Cologne, the fiscal equalisation scheme is not suitable for equalising structurally caused differences in the economic strength of the Länder so that with a "lowering of the minimum level in the horizontal fiscal equalisation, accompanying measures must be taken to improve the economic strength of structurally disadvantaged Länder". For Prof. Gisela Färber, University of Speyer, and Prof. Thomas Lenk, University of Leipzig, a reform of the fiscal equalisation scheme is not sufficient; instead, "a completely new fiscal system should be placed on the agenda". Prof. Bernd Huber, University of Munich, also fears that the massive levies of the present system "lead to inefficiencies in the tax administration and have a negative impact on the economic growth of the Länder". In his opinion, "a reform of the fiscal equalisation scheme must focus on reducing the high fiscal increments".