The Solidarity Surcharge to Support Eastern German Länder – Status quo and Outlook

This article offers an overview of the flow of payments between Eastern and Western Germany in the years between 1991 and 2010 and their development in the future. Since German reunification the dependency of the Eastern Germany economy on solidarity surcharges has decreased significantly, despite the fact that the inflow of funds currently still accounts for over 20% of Eastern Germany’s nominal GDP. This figure should decrease even further in the years ahead. The economic situation in the new Länder has improved significantly over the past two decades thanks to growth-related expenditure by the federal government. It is nevertheless important to remember that the greater part of (gross) expenditure on the Eastern German Länder is now spent on social services and this share will increase in the future. This is primarily a result of the growing demographic transformation, which is specifically increasing the subsidies required for pensions and nursing care insurance. To accelerate the catching-up process in the Eastern German Länder, it would certainly be well worth reweighting growth-related and socio-political expenditure.