Public Choice

, Volume 159, Issue 1–2, pp 121–139

On the political and fiscal determinants of income redistribution under federalism and democracy: evidence from Germany



Several recent studies suggest that transfers from central to regional governments are motivated by political considerations. In this paper we examine if this is also the case for transfers from regional to central governments in the context of the German fiscal equalization system. We examine the factors that contribute to differences in tax revenues across German states. The evidence indicates that both fiscal incentives and political factors can explain these differences, although in Germany the former are more important. Moreover, accounting for fiscal institutions has important consequences for the empirical assessment of political influences on taxation. Overall we find that the political affiliation of the state governor is an important factor in explaining differences in state tax revenues. Thus, the right-wing party (CDU/CSU) is effective in relaxing the tax burden at the state level. In contrast, partisan alignment between the state government and the federal government loses its importance once fiscal conditions enter the empirical model.


Intergovernmental transfers Redistributive politics Political alignment 

JEL Classification

D72 H71 H77 

Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  1. 1.Institute for Statistics and EconometricsGeorg-August-University GöttingenGöttingenGermany
  2. 2.Departament d’Economia and CREIPUniversitat Rovira i VirgiliReusSpain

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