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Unformatted text preview: l government was 5.8 bill. DM in 1998; the special
grants for the new Länder were 14.0 bill. DM. The high volume of these federal grants has become subject to criticism
not only by economists, who tend to stress the inefficiencies of “softening” budget constraints, but also by politicians and
lawyers—and specifically the Constitutional Court—, who stress the excessive redistribution effects of this type of
grants. The Constitution had reserved such forms of asymmetrical vertical intervention by the federal government for
exceptional circumstances (such as unification, for instance); there was no intention to use them as regular instruments
for “filling gaps” in the budgets of a majority of states.
The importance by volume of each of the three steps of horizontal equalization is shown in the following table for the
VOLUME OF REDISTRIBUTED RESOURCES
(in bill. DM)
(only supplement payments) Finanzausgleich Federal grants 17.6 13.5 25,7 The redistributive impact of the latter two stages of equalization is depicted in figures 4a and 4b (see also figure 1 for the
implicit equalizing effects of VAT sharing).
If the equalizing effects of the various steps of the Finanzausgleich are measured in terms of the coefficient of variation,
the following picture is obtained: At the beginning of the 70s, the average variation of fiscal capacity per capita before
stage one (VAT distribution) was about 17 percent, and only 9 percent after stage three (asymmetrical federal grants).
However, the latter played only a negligible role both in quantitative terms and in reducing regional inequalities. The
equalizing impact of VAT sharing was about as important as the effect of the Finanzausgleich proper. 45 Commission on Fiscal Imbalance FIGURE 4a FIGURE 4b 46 Commission on Fiscal Imbalance If the effects of the three stages of equalization immediately before unification (1989) are compared with those of the
actual scheme, which was introduced in 1995, the picture changes dramatically (see figure 5 ): Expectedly, the preequalization variation coefficient is much larger than before (25.9 percent), but—surprisingly—VAT sharing alone is
capable of reducing the variation coefficient to almost pre-unification levels (10.3 percent compared to 9.2 in 1989).
Furthermore, the equalizing stance of the Finanzausgleich had been remarkably enlarged: After the second stage of
equalization, the variation coefficient of 1995 falls to 3.3 percent (compared to 7.2 in 1989). Most remarkably, however,
the third stage—asymmetrical federal grants—widens the discrepancies again rather than equalizing further. The
variation coefficient attains almost the same level as before the Finanzausgleich. Of course, this is mainly explained by
the preferential treatment of Eastern states, but even for the Western states the federal grants program would increase
regional discrepancies rather than mitigate them.
FIGURE 5 4. THE CONFLICT BETWEEN SOLIDARITY AND SUBSIDIARITY It is increasingly being realized in Germany that homogeneity as to outcomes has its price. The ensuing degree of
regional redistribution has clearly been pushed bey...
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