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Unformatted text preview: hat complement 100 per cent of the difference; for states with a relative position between 92 and 100
per cent, the marginal transfers closes 37.5 per cent of the gap. On the other side, the contributing states see their
marginal own financial resources reduced by rates ranging from 15 per cent (for a relative position between 100 and 101
per cent of the national average) up to 80 per cent (for a relative positions above 110 per cent of the average).
FIGURE 3 The equalizing effects of the Finanzausgleich are considerable. The program guarantees that the fiscal capacity of all
states attains at least 95 percent of the average tax capacity. The marginal burden on the contributing states reaches 80
percent, and it may even exceed the 100-percent mark under certain conditions. 18 19
20 44 The equalization yardstick also accounts for tax revenues of the state’s municipalities (at 50 percent). For local taxes, of which municipalities can vary
the tax rate, an average national tax rate is used to standardize revenue. An unsystematic element of the scheme is the compensation for some
“special burdens” according to paragraph 7 (3) FAG, which is taken care of by lump-sum corrections. The weighting procedure for the population is
ruled in paragraph 9 (2) FAG for the states, and in paragraph 9 (3) for local governments; the latter uses a progressive scheme in line with the
population of the jurisdiction. The differential weights for city states and larger municipalities can be interpreted as accounting for some
“agglomeration costs” of larger jurisdictions.
Canada avoids the negative impact of high implicit marginal “tax burdens” through its asymmetrical (level-up, but not down) revenue equalization
This is the case if the sum of payments needed for the deficient states exceeds the sum of payments for the contributing states as calculated
according to the formulae. In this case, the discrepancy is distributed evenly onto contributing states. Commission on Fiscal Imbalance At a third level, there is a final corrective of the distribution of public resources in the form of asymmetrical vertical grants
by the federal government: so-called supplementary federal grants (Bundesergänzungszuweisungen). Such transfers
according to article 107 (2) GG have been widely used after unification while they were almost insignificant before. They
also were decisive in establishing consensus among the various jurisdictions with the aim of compensating the formerly
sot Eastern states. In particular, factual “gap-filling grants” (Fehlbetragsergänzungszuweisungen) have been
introduced that guarantee at least 99.5 percent of the average fiscal capacity for all states. Moreover, nine states out of
sixteen receive federal grants to relieve the costs of “political management” (politische Führung), and the new Eastern
states as well as some Western counterparts receive federal grants in compensation of “special burdens”.
The volume of the highly controversial „gap-filling grants“ of the federa...
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