Keywords

Introduction

There was the problem that too many cooks spoil the broth. There were strategic decisions to be made by all 16 Länder, and it is difficult for 16 Länder to reach agreement. (KON01)

Not only is digitalization a buzzword on everyone’s lips, it also seems to be in everyone’s hands. Few other policy areas involve as much coordination and cooperation as public sector digitalization. It cuts across government levels, sectors, and issues, bringing together numerous stakeholders guided by partly diverging rationales and interests. Nevertheless, digitalization holds a common promise for many, ranging from more effective and efficient public service delivery to more participative opportunities for citizens and the promotion of democratic values (Fischer et al., 2021; Lee, 2010). Especially in times of crisis, there is an expectation that digitalization can mitigate pressures on the politico-administrative system (Nolte & Lindenmeier, 2023; Shen et al., 2023). Therefore, against the backdrop of increasingly strained public administrations grappling with multifaceted external crises, including the COVID-19 pandemic, climate change, and refugee assistance (see previous chapters in this book), as well as internal constraints stemming from limited economic and personnel resources, digitalization is regarded by many practitioners and politicians as a beacon of hope for the modernization of the public sector. However, its negotiation and implementation pose a challenge for all levels of government (Gauß, 2020). It necessitates extensive vertical and horizontal coordination efforts involving various private and public sector stakeholders. In multi-level contexts, in particular, digital government coordination among national, regional, and local authorities, as well as organizations tasked with executing technical aspects, can be a conflictual endeavour (Di Giulio & Vecchi, 2023).

While coordination challenges are not unique to the policy field of public sector digitalization, they are particularly prominent, making it a compelling and illustrative case for studying intergovernmental relation (IGR) processes. There is an ongoing debate on how to successfully steer and implement digitalization reforms. Especially in federal contexts, digitalization is characterized by a strong tension between the imperative of standardization and concomitant centralization tendencies, on the one hand, and decentralization forces inherent in federalism, on the other hand (Kuhlmann & Bogumil, 2021). A centralized approach to digitalization can promote convergence and interoperability, possibly resulting in a uniform and efficient implementation. However, it may neglect to consider the need for tailoring digital tools and processes to the unique requirements of local contexts—a consideration that a decentralized approach potentially ensures (Di Giulio & Vecchi, 2019). Conversely, the decentralized approach, while accommodating local nuances, carries the risk of fragmentation and duplicate solutions. In practice, a blend of these ideal types is often observed, but a noticeable gap persists in comprehending the intricate intergovernmental relation dynamics involved (Margetts & Naumann, 2017; Rackwitz et al., 2021).

A look at the current state of German public sector digitalization reveals rather critical assessments of its implementation and unanticipated negative consequences affecting both public employees and citizens, despite the associated potential benefits (Kuhlmann & Heuberger, 2021). Problems in the political steering and coordination of digitalization are mentioned as the main barriers (Kuhlmann & Bogumil, 2021). This underscores the need for a renewed study of the policy process in order to advance our understanding of where and how digitalization policies are effectively negotiated within multi-level systems and the subsequent ramifications for local policy implementation. The following questions thus guide the research:

How and where is the digitalization of German tax administration located and negotiated within the federal intergovernmental relations context? How is digitalization policy implemented within local tax administrations? How are these elements related?

Applying the framework of contrasting IGR processes (multi-layered, centralized, and conflicted) to the policy field of public sector digitalization, this chapter presents a case study centred on Germany’s tax administration. Drawing on expert interviews conducted with various stakeholders engaged in the strategic and operational steering as well as implementation of digitalization policy, the findings demonstrate that a multi-layered approach to digitalization policy, characterized by “concentration without centralization”, positively impacts implementation. Bundling competencies at an intergovernmental level, accompanied by a respective legal framework, has shifted the digital turn from a conflicted to a cooperative, multi-layered policy process. The findings enrich both the academic debate and empirical evidence available to practitioners and policymakers by illustrating the effectiveness, along with the associated challenges, of a “concentration without centralization” approach in a complex federal system like Germany.

Section “Conceptual and Methodological Framework” adapts the conceptual framework distinguishing between the various types of intergovernmental processes to the context of digitalization policy and presents the methodological approach. On this basis, section “The German Tax Administration’s Digitalization as Multi-layered Policy” examines the coordination of the tax administration’s digitalization, tracing the trajectory from a contested to a multi-layered policy process. The implications thereof for the local implementation of digitalization policy and the respective challenges are then discussed in section “Local Implementation of Digitalization Policy”. Section “Discussion and Conclusion” concludes by highlighting further implications of the analysis.

Conceptual and Methodological Framework

Conceptually, the policy field of public sector digitalization is related to the broader discourse around e-government, and more recently digital government transformation (Mergel et al., 2019; Tangi et al., 2021), Digital Era Governance (Dunleavy et al., 2006; Dunleavy & Margetts, 2023) being considered a key public governance paradigm (Torfing et al., 2020). Regarding digitalization as a policy field of its own takes into account both the governance and implementation processes of digital tools and services. The digitalization of the politico-administrative system is further understood as an institutional policy (Kuhlmann & Heuberger, 2021). It not only impacts governmental processes and structures but also features distinct governance arrangements.

Given the cross-cutting nature of digitalization policy, it necessitates extensive horizontal and vertical coordination in multi-level federal contexts involving a diverse range of actors, from central to local governments and non-governmental actors. Scholars have noted the challenges posed by this complexity (Di Giulio & Vecchi, 2023). This policy field confronts a tension between the need for standardization of digital infrastructure and the operational requirements of local organizations, potentially leading to friction between a more centralized policy approach and the decentralized nature of federal systems, such as Germany. The discussion mirrors the contrasting types of IGR processes, namely multi-layered, centralized, and conflicted policy processes (Bergström et al., 2022). Applying the framework to digitalization policy, the following arrangements can be imagined:

  1. (1)

    Centralized Digitalization Policy Process

Certain scholars argue for the need for a centralized digitalization policy process, emphasizing the benefits of hierarchical steering. Digitalization efforts are located at the central level and policy is negotiated by the central government, while subnational governments are largely excluded from both policy-making and IT development. Mechanisms to veto the central government’s digitalization policy are practically non-existent, and subnational authorities have very limited discretion regarding policy implementation. In line with this, the notion of e-Centralism is proposed to characterize digitalization policy processes with a single national strategy and information infrastructure (Kassen, 2015).

  1. (2)

    Multi-layered Digitalization Policy Process

Intergovernmental relations and mechanisms for conflict resolution across the layers of government are institutionalized, and the subnational levels are included in the digitalization policy process. This can be expressed in multi-level digitalization networks or other forms of institutionalized cooperation between the various stakeholders. The central level does not have the sole decision-making authority, but must make concessions to the subnational actors, thereby contributing to a multi-level power balance. This may present itself as what can be described as “concentration without centralization” when digitalization efforts are concentrated at an intergovernmental level instead of centralized at the national level (Heuberger, 2022). Thus, intergovernmental collaboration is seen as an influential contributing factor to negotiating and implementing digitalization policy (Rackwitz et al., 2021).

  1. (3)

    Conflicted Digitalization Policy Process

Digitalization policy processes may be conflicted due to the federal organization of administrative responsibilities complicating coordination (Hustedt & Trein, 2020). Numerous veto points can prevent a centralized and uniform introduction of digital public services, as there is a lack of clear communication and conflict resolution mechanisms between the central and subnational governments. The different actors are reluctant to relinquish responsibilities and, instead, follow their individual interests. As a result, duplicate structures and programming efforts may emerge.

The study emphasizes central-local relations, recognizing that local policy outcomes are influenced by national policy settings (Laffin, 2009). However, rather than viewing this relationship as deterministic, the agency of local administrators as policy implementers is acknowledged (Lipsky, 1980). Evidently, not only the negotiation but also the implementation of digitalization policy requires substantial interagency cooperation, including local authorities and their employees tasked with public service delivery. Implementation, too, is “essentially a problem of cooperation” (O’Toole & Montjoy, 1984). Due to the high complexity associated with digitalization policy, cooperative intergovernmental relations are expected to positively influence implementation performance (Lundin, 2007).

Methodological Approach

The study takes a qualitative approach, treating the intergovernmental digitalization project in the German tax administration as a case study. While the research approach affects the extent to which wider claims can be made on the basis of the analysis, it provides valuable empirical insights about the particular phenomenon, holding value for the research of other public administrations and contexts (Walsham, 1995). The goal is to gain access to data that is thick, nuanced, and descriptive, reflecting the stakeholders’ perspective on the coordination and implementation of digitalization policy in a federal intergovernmental relations context. Hence, in conjunction with desk research to analyse official documents, expert interviews constitute the foundation of the empirical analysis (n = 29). Through this approach, explanations for specific events and processes as well as insights from personal perspectives, such as attitudes and perceptions, are provided. To ensure a holistic analysis of the phenomenon, a heterogenous group of experts was interviewed. Interviews were conducted with both public officials from Länder ministries and their associated bodies responsible for IT infrastructure, as well as individuals involved in the intergovernmental digitalization network “KONSENS”. Additionally, public employees working in local tax offices were selected as interview partners to provide insights into the local implementation of digitalization policy. These interviews encompassed various positions (street-level, management, head of office) and spanned different Länder. See Appendix A for an overview of the interview partners. The interviews were conducted in German and took place from April 2022 to May 2023 either in person or via phone/video call. To ensure a sufficient degree of reliability, the interviews were structured following an interview guide, audio-recorded, and then documented in protocols according to standard conventions. The interview guides were based on open-ended questions and tailored to the interviewees’ professional position and area of expertise (i.e., focused on either the operations of the KONSENS network or the practical aspects of using digital tools at the local level). In total, data from expert interviews with 29 interviewees were analysed based on qualitative content analysis using MaxQDA software and following an abductive coding approach.

The German Tax Administration’s Digitalization as Multi-layered Policy

In order to contextualize the research, it is worth taking a look at how the digitalization of the tax administration relates to the general state of digitalization in German public administration. When comparing the digital performance to other member states of the European Union, Germany usually ranks towards the middle at best. In 2022, Germany took 18th place in the Digital Economy and Society Index (DESI) for its digital public services, below the EU average (European Commission, 2022). However, recent years have witnessed a surge in digital reform activities at both federal and Länder levels. This is reflected, inter alia, in the implementation and revision of the 2017 Online Access Act (Onlinezugangsgesetz—OAA), as well as the e-government laws on the federal and Länder levels. The adoption of the OAA was seen as a milestone at the time and created momentum for digital government transformation (Bundesministerium des Innern und für Heimat, 2016; National Regulatory Control Council, 2021). It obliges the federal government and the Länder, firstly, to offer their administrative services online and, secondly, to create a single access point to these administrative services, the so-called portal network (Portalverbund). In the meantime, there has been some reform disappointment: at the end of the implementation period in October 2022, only 33 out of 575 administrative services were available nationwide. In the context of later efforts towards revising the OAA, it is highlighted that its implementation has been perceived as successful where the federal government and the Länder have worked jointly and with a division of labour (Bundesregierung, 2023).

While the introduction of the OAA may have accelerated digitalization efforts in many administrative areas, it is important to recognize that the tax administration’s digitalization process began much earlier, dating back to the early 1990s. This extended timeline of digital development not only included setbacks but also allowed for learning loops that other administrations may not have experienced (yet). In the meantime, the tax administration is considered to be among the most digitally advanced public administrations in Germany, as it is “continuously working towards the digital transformation of its internal procedures and external offers” (National Regulatory Control Council, 2018, p. 36).

Structure and Actors of the (Digital) Tax Administration

Governance structures within tax administrations exhibit variations across jurisdictions, typically featuring one or multiple directorates or units situated within the country’s Ministry of Finance or its equivalent, or functioning as a unified semi-autonomous body. Germany presents an exceptional case where tax collection responsibilities are largely devolved to regional (Länder) administrations, with a comparatively small central body assuming a key coordinating role. In the European context, a centralized tax administration is the norm, with Switzerland being the other exception due to its 26 subnational “cantons” handling tax collection on behalf of the federal government (OECD, 2019; Schaebs, 2022). In concrete terms, the German tax administration is divided between the federal and Länder governments responsible for levying and assessing taxes. The federal financial administration is structured in two tiers and that of the Länder in three tiers, in principle, although a two-tier structure is possible. The Federal Central Tax Office (Bundeszentralamt für Steuern) is the higher federal authority operating under the auspices of the Federal Ministry of Finance. Its responsibilities include, inter alia, providing information to and for the data exchange with authorities, specifically maintaining the tax identification number database. The Länder tax administrations include the Land Ministry of Finance as well as tax offices as local authorities, functioning as deconcentrated Land administrations. In some cases, a Land Office for Taxation or Reginal Finance Office exists as an intermediate layer. Additionally, computer centres or technical tax offices can be found as local or intermediate Land authorities, either within public administration or outsourced to external service providers. In the case of taxes whose revenue accrues at least in part to the federation, the Länder act on behalf of the federation (Bundesauftragsverwaltung). The tax administration is still very strongly hierarchically organized, which is also due to the fact that taxation must be uniform throughout the entire federal territory as the taxation procedure is based on the constitutionally secured principles of uniformity (Gleichmäßigkeit) and legality (Gesetzmäßigkeit) (§ 20 (3), § 3 (1) German Civil Code; § 85 AO). This uniformity of taxation in administrative execution is to be ensured while preserving the decentralized administrative organization and independent competencies of the Länder.

The cooperation of the federal and Länder governments for the provision of digital administrative services in the tax administration is bundled in an intergovernmental network called “KONSENS”. It was created jointly by all Länder and the federal government. KONSENS (English: consensus) is an apronym translating to “coordinated new software development of the tax administration” (Koordinierte neue Software-Entwicklung der Steuerverwaltung). As previously discussed, the point of departure was the inherent tension between uniform administrative procedures and decentralized structures, encapsulated by one interviewee’s statement: “Of course, the entire KONSENS network is a response to federalism. We say, okay, on one hand, we have uniform tax laws, but on the other hand, we have 16 different tax administrations. How do we bring that together, how can we harmonize it?” (KON01). In order to institutionalize intergovernmental coordination in the context of digitalization, an administrative agreement was introduced in 2007. Since 2019, it is complemented by the so-called KONSENS Act to regulate the joint development, procurement, and maintenance as well as the use of the software in a binding manner. Despite the KONSENS Act being a federal law and therefore only pertaining to taxes that the Länder administer on behalf of the federal government, its regulatory content also applies mutatis mutandis to original Länder taxes (Heller, 2022). Five Länder (Baden-Wuerttemberg, Bavaria, Hesse, Lower Saxony, and North Rhine-Westphalia) are in charge of programming software based on the principle of one for all (Einer für Alle—EfA), meaning that under the leadership of one Land, specific tax procedures and the corresponding software are developed and used in all 16 Länder (Bayerisches Landesamt für Steuern n.d.; KONSENS Steuerungsgruppe IT, 2021). The other Länder have to co-finance programming, maintenance, and servicing and have a say through various KONSENS bodies, but are not involved in the development itself (KONSENS Steuerungsgruppe IT, 2021).

In the case of the German tax administration’s digitalization, we can identify a multi-layered policy process. Specifically, a concentration of competencies at an intergovernmental level is observed. This characteristic, while rather exceptional, is shared with some other areas of German public sector digitalization, where an intergovernmental body is established and jointly staffed by the involved units of government (Behnke & Kropp, 2021). In contrast, a centralized digital policy process, resembling the concept of e-Centralism, is deemed unviable by interviewees within the German federal framework. This is primarily attributed to the historical path dependence of ICT infrastructure within the Länder, encompassing varying computer centre capacities and operating systems. Furthermore, the perceived benefits of decentralized structures, particularly in regard to accessing personnel resources, will be elaborated upon in the subsequent chapter.

To gain clearer insight into the workings of this concentrated process and how it aligns with the dynamics of central-local relations, an examination of the organizational structure within the intergovernmental digitalization network KONSENS is informative (refer to Fig. 9.1 for a visual representation). At the top of the network is the commissioning body, which is made up of representatives from all the Länder and the federal government. The five software-developing Länder are designated as Steering Group Länder, meaning that representatives from each of these Länder participate in the so-called steering group “IT” (Strg-IT). This body is responsible for the strategy and architecture of the overall digitalization project and is chaired by representatives of the federal government. Moreover, the so-called steering group “Organization” (Stgr-O) is responsible for the structural and procedural organization. It is also made up of the five software-developing Länder, as well as the federal government and the city-state of Hamburg (in order to take into account the specificities of the city-states). The remaining Länder not included in the steering group participate in the decision-making process by giving approval to the project plan for the upcoming years, and can assert Land-specific requirements after the specifications have received approval from the Steering Group. Finally, the operative steering is done by the General Management comprising three actors: a representative of the Federal Ministry of Finance plus representatives of Bavaria and North Rhine-Westphalia as deputies. Their work is assisted by multiple central organizational units (i.e. for project management) that are distributed across the Länder. The General Management has the role of a management board: “If the General Management says it has to be done this way, then it has to be done this way” (KON04), even if interviewees felt that this role could be even more enhanced. Therefore, we observe a mechanism previously described as “concentration without centralization”. The cooperation in the multi-layered policy process is based on bundling competencies, both strategic and operative, in specialized units of the network. This is considered to be one of the crucial points as to how the intergovernmental network can overcome obstacles of lengthy and conflicted coordination. Due to the legally enforced organization of the KONSENS network, individual Länder cannot interfere with the decisions made by the Steering Group “because then we would be back to too many cooks spoiling the broth” (KON01). Despite this, horizontal coordination, both in the commissioning body and the steering groups, is characterized by a collegial atmosphere according to involved interviewees. It is emphasized throughout that the stakeholders generally have the bigger picture in mind and that Land interests can play a role, but usually a subordinate one. This is succinctly summarized by one interviewee:

We aim for a voting ratio of 17 to 0. Sometimes there are abstentions, but we have almost no constellations where there are dissenting votes. This can sometimes lead to long discussions in advance, but is usually helpful. The KONSENS network is also called KONSENS because we want consensus. (KON02)

While horizontal coordination at the subnational level is generally marked by minimal conflict, vertical coordination between the Länder and the federal government presents a more intricate dynamic. The different levels of government are often described as having disparate perspectives and pursuing divergent interests, leading to heightened tensions in communication and cooperation. The creation of the General Management unit reflects the federal government’s attempt to “try to guide and direct a little, which is also sensible and necessary” (KON02). Additionally, the federal government possesses the de jure authority to issue IT directives, although, in practice, it has never exercised this prerogative. It must be emphasized that the federal government relies on the Länder, given that the programming capacities are predominantly located at the subnational level and implementation is done locally. On the contrary, the federal level can also face difficulties asserting their software interests, e.g. in tax auditing, against the five other steering group Länder “because they naturally prefer to develop software for 120,000 tax office employees than for 1500 or only 500 auditors at the federal level” (KON06). When conflicts arise, there are formalized mechanisms for discussing and resolving them. An additional issue presents itself due to the fact that specific federal government-led programming initiatives do not fall within the purview of the KONSENS ecosystem and therefore remain exempt from the corresponding regulatory framework. This divergence results in deviations from the standardized KONSENS processes, necessitating increased levels of coordination when these programmes incorporate interlocking interfaces.

It’s regrettable that, despite our consistent demands, they continue to resist complying with the KONSENS rules. […] I would say that the cooperation there is nowhere near as good as in the steering group. This can be attributed to the federal government’s stance, as they seem to consider their programming for the German tax administration more like an external service provision for KONSENS; they don’t have to follow the rules; that is very obstructive. (KON04)

It is evident that the concentrated approach cannot completely resolve all conflicts arising from the federal organization of administrative responsibilities. However, the imposition of clear legal mandates and the precise allocation of operational and strategic competencies ensure a multi-layered policy process rather than a conflicted one. An examination of the historical trajectory of the tax administration’s intergovernmental relations in the context of digitalization illustrates its shift from a conflicted process to one characterized by multi-layered collaboration.

Fig. 9.1
A block flow chart of organizational structure of the KONSENS network. Commissioning body has steering group I T and steering group organization under strategic steering. They have general management, central organizational units, and conference of development directors under operative steering.

Organizational structure of the KONSENS network. Source: own representation based on KONSENS (2019), see also Gräfe et al. (2024)

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History of Digitalization Policy in Tax Administration: From Contested to Multi-layered

Even before the establishment of the KONSENS network in 2007, there had been attempts by the federal and Länder governments to cooperate with regard to digitalization policy (Schaebs, 2022). Starting in the 1960s, there were various digitalization initiatives that, however, could not achieve the goal of a nationwide standardization of IT procedures and software, and were ultimately terminated. In 1991, “FISCUS” was founded as an IT service provider for the tax administration with the objective of implementing uniform software across all Länder. However, there were multiple intergovernmental programming networks concurrently developing IT solutions. Bavaria, which was already advanced in terms of their tax IT, initiated the “EOSS” network (Evolution-Oriented Tax Software) in 2002 together with Saarland to further develop and share their existing Land procedures. The newly reunified Länder of Brandenburg, Mecklenburg-Western Pomerania, Saxony, Saxony-Anhalt, and Thuringia, lacking their own software development, adopted numerous procedures from Bavaria and joined the EOSS network. As one interviewee put it, “The old Länder courted the new ones, and Bavaria […] successfully persuaded the new Länder that the Bavarian procedures were the most suitable for them” (KON04). Over time, additional Länder joined, though not all, resulting in incompatible procedures and duplicated structures. During this period, the digitalization policy process could be characterized as conflicted, with horizontal coordination presenting a significant challenge. Nevertheless, these early advancements partly served as the foundation for KONSENS.Footnote 1 “Eventually, one Land after another joined. […] The turning point came with Baden-Wuerttemberg; at that moment, everyone conceded that, despite any reservations, this was the correct path forward, leading to the recruitment of KONSENS on that foundation” (KON04). Subsequently, the Conference of Finance Ministers decided in several rounds between 2004 and 2005 to jointly pursue the digitalization of taxation procedures. They agreed on a new organizational structure and established steering groups. The decision was made to entrust software development to the five large Länder, each already equipped with substantial development departments. In 2006, the FISCUS project was officially terminated, and a draft administrative agreement was prepared to advance KONSENS.

In summary, a shift from a conflicted to a multi-layered policy process occurred in the context of the German tax administration’s digitalization. A key mechanism fostering more cooperative intergovernmental relations can be described by the aforementioned notion of “concentration without centralization”. An intergovernmental digitalization network was established that encompasses both the federal and Länder governments, securing the representation of the subnational level. Concurrently, the strategic and operative steering was bundled at the intergovernmental level enabling a top-down commitment to the policy process.

Local Implementation of Digitalization Policy

The described policy process influences the implementation of digitalization in local tax offices. In Germany’s public administration, executive functions primarily fall under the jurisdiction of the Länder and local authorities (Behnke & Kropp, 2021). The establishment of the KONSENS network has shifted the responsibilities of the Länder in terms of ICT development, but it has not absolved them of their roles. The subnational level continues to be responsible for areas involving technical, organizational, and personnel aspects: it has to provide the personnel resources as well as the hardware and computing infrastructure to the local authorities, requiring millions of funds to be allocated annually. One interviewee succinctly captures this dynamic: “The actual operation in the Länder is not part of KONSENS. That is still a matter for the Länder, and it is true that it costs energy and sometimes time because you have to wait until each Land is ready to use the software” (KON03). Therefore, the local level, including its public employees, plays a pivotal role in the implementation of digitalization policy. The interplay between the multi-layered policy process and local-level practices in engaging with the digitalization policy is crucial in understanding the emerging challenges. Additionally, the impact of crises on the local implementation of digitalization policy is noteworthy. The COVID-19 pandemic acted as a catalyst, accelerating the adoption of digitalization practices.

A first set of challenges relates to resistance to change. Introducing KONSENS software often necessitates replacing existing procedures, which can be met with resistance, as local administrators have grown accustomed to their established routines. Newly developed KONSENS software “is always in competition with the previous procedures that have been used so far. When new KONSENS procedures are introduced in the tax offices, it is always a question of conversion. […] When existing procedures are replaced, the effects are, of course, relatively great and not always positive, because the administrators have got used to what they had before” (KON06). Such resistance is further compounded by a sense of restriction and external control, as digitalization and decision-making competencies are located at superior levels. Many employees at the local level perceive their role as essentially non-existent, with limited opportunities for meaningful participation in the digitalization process. From their perspective, it appears that digital changes are predominantly implemented in a top-down fashion, or even “imposed from above” (TAX05). As one interviewee stated, “We are told: Tomorrow there will be an update and then the program will suddenly look different. Have fun!” (TAX09). This sentiment highlights a common challenge where employees feel that digitalization policies are often presented as a fait accompli. It is repeatedly mentioned that there seems to be a gap between theory and practice with regard to the involvement of the local level. In theory, there are channels for input and feedback, but in practice these mechanisms are often perceived as having limited impact. An illustrative example of this gap is a time when a programme update was found to be particularly faulty during a pilot phase. Stakeholders at the Computer Centre were contacted and asked not to release the update until the issues were resolved. However, the interview partner revealed that updates, driven by legal requirements or financial considerations, are often released despite employees’ reservations. This sense of limited influence leads to a state of resignation at the local level, described by one head of department as, “those were the early days, when people still tried to change things. In the meantime, we know that it is relatively difficult to exert any influence at all” (TAX06). The principle that organization adapts to IT, rather than the reverse, was emphasized by interviewees across all levels of administration.

In response to these challenges, local administrators employ various coping mechanisms. These mechanisms include pragmatic solutions and workarounds to navigate the constraints they face. Sometimes, digital tools are not implemented or used as intended, often due to perceived technical deficiencies. For instance, one interviewee explained, “I’m still from the old school. […] There are different ways of working. And I think with this electronic file, I’m the generation that says, no, I still know the other one and as long as it works, I’ll take it” (TAX12). The role of the head of office within local tax authorities is particularly critical in this context. While these heads may have limited decision-making authority regarding digitalization due to the concentrated process, the interviewees pointed out that their approach and attitude towards digitalization policy implementation significantly impact the local dynamics.

Despite these implementation challenges, there is compelling evidence that the described mechanism of “concentration without centralization” serves to facilitate the local implementation of digitalization policy. In particular, the formal legal agreements introduced alongside the KONSENS network are instrumental in limiting local discretion regarding the implementation of digital tools. Länder are required to implement newly developed tools and software in the local tax offices within one year of their development. Additionally, citizens are mandated to engage with the digital public services of the tax administration through partial legal obligations, such as filing tax returns electronically. The rule-bound approach of the multi-layered policy process thus extends to the local implementation, effectively enforcing the adoption across local authorities and citizens. Further, there are indications that “concentration without centralization” serves as a mechanism to achieve equilibrium in the context of resource allocation. The approach consolidates competencies while leveraging the advantages of decentralized structures. In light of personnel shortages in the public sector, decentralized programming units are deemed advantageous, allowing access to specialists from a broader geographic area. Concurrently, smaller Länder, which may otherwise lack the financial and personnel resources to adequately implement digitalization policy, benefit from the concentration of programming capacities.

In addition to the arrangement of the policy process, there are indications that external pressures in crisis situations exert a substantial influence on the local adoption of digitalization policy. According to the interviews, the COVID-19 pandemic played a pivotal role in prompting a relaxation of tax secrecy regulations to facilitate digital remote work and expediting local IT procurement processes, which became imperative with office work restrictions in place. As one head of office emphasized, the utilization of laptops and video conferences was previously inconceivable pre-COVID-19, underscoring that the tax offices owe their current state of digitalization significantly to the impact of the pandemic.

In summary, while it is essential to acknowledge the aforementioned implementation challenges, they should not overshadow the overall positive dynamic of the multi-layered policy process enacted through the intergovernmental digitalization network in German tax administration. As expressed by an interviewee from a Land ministry, “that doesn’t mean we have highly satisfied staff in the tax offices. You will find that out no matter who you ask. Everybody complains about KONSENS. I can say that right away, yes. But at what level? That is the question” (TAX02). Considering the relatively high digital maturity of procedures and services in the German tax administration, the specific intergovernmental relations described as “concentration without centralization” function as a driving force for local digitalization policy implementation.

Discussion and Conclusion

The study investigates intergovernmental relations in the policy field of public sector digitalization by examining how and where the German tax administration’s digitalization is situated and negotiated within the multi-level system and how digitalization policy is implemented within local tax administrations. It further seeks to understand the interconnectedness of these elements in the broader context of digitalization policy. The findings reveal a multi-layered, interdependent system characterized by the shared yet clearly delineated responsibilities of the federal and Länder levels. The negotiation of digitalization occurs at the crossroads of these levels, within an intergovernmental network characterized by a “concentration without centralization” mechanism to consolidate competencies. The results illustrate that accommodating a concentrated digitalization process within the politics of central-local relations in a way that ensures effective governance and cooperation does not come without challenges. Nevertheless, this approach has played a role in facilitating a transition in the course of the German tax administration’s digitalization from a conflicted to a more collaborative, multi-layered policy process, acknowledging the influence of other contributing aspects. It encompasses substantial vertical and horizontal cooperation between federal and Länder governments, anchored in legal frameworks. The study’s findings resonate with prior insights, emphasizing the pivotal role of both political commitment and trust relationships in intraorganizational interdependencies (Di Giulio & Vecchi, 2023). The results also highlight the challenges and opportunities that surface during the implementation phase. There is strong evidence that the way digitalization is negotiated in the federal intergovernmental context has profound implications for the actions and attitudes of the local implementers. The empirical finding that local administrators employ various coping mechanisms resonates with the broader literature emphasizing the diverse strategic responses to institutional constraints (Oliver, 1991). Resistance to change at the local level, stemming from perceived limited influence, underscores the need for more inclusive strategies. However, the mechanism of “concentration without centralization” has proven crucial in achieving a balance between bundled competencies and decentralized structures (Heuberger, 2022). Beyond that, it is vital to acknowledge the challenges and ambiguities linked to digitalization, especially within the evolving discourse on Artificial Intelligence (de Sousa et al., 2019). Navigating the complexities of public sector digital transformation requires a nuanced understanding that recognizes both the opportunities and challenges posed by advancing technologies. To address potential dilemmas and unintended problems regarding the adoption and utilization of digital technologies, this study aligns with previous research highlighting the necessity of placing a central focus on institutional arrangements (Kuhlmann & Heuberger, 2021; Luna-Reyes & Gil-Garcia, 2014).

The findings carry implications for both research and practice. In terms of the empirical case of digitalization policy, there is reason to believe that the German tax administration’s experiences are not unique and can serve as a valuable case study within the broader landscape of digital government transformation. For policymakers and practitioners engaged in public sector digitalization, the research provides practical insights into optimizing the interplay between different levels of public administration. The success of the multi-layered approach underscores the importance of legally consolidating competencies, fostering collegial atmospheres, and establishing formalized mechanisms for conflict resolution. The insights into the challenges faced at the local level provide a foundation for change management strategies and policies that account for local administrative practices. Moreover, this research contributes to the broader academic discourse on the governance of digitalization in public administration, empirically enriching the concept of “concentration without centralization”.

In terms of future research, there is value in conducting comparative studies that examine similar digitalization projects in different federal systems. Building upon this study’s insights, further investigation into the dynamics and implications of concentrating both operational and strategic digitalization responsibilities within intergovernmental networks is needed. In brief, delving deeper into the mechanisms of multi-layered policy processes in the context of public sector digitalization, both across issues and cross-nationally, holds promise for future research.