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Unformatted text preview: and (3) the
impact of specific federal transfers that affect the state’s relative position as defined at stage (1). Moreover, the elements
(1) and (2) would have to be standardized rather than be based on effective revenue or expenditure. In Germany there is
already some standardization as to the revenue of municipalities, where an average tax rate is used rather than the
effective rate. For the remainder of fiscal revenue, fiscal capacity is already largely “standardized” by the very fact that
the tax law is uniform throughout the country.
The latter statement is however confined to legal aspects of taxation only. In principle, standardization would have to
take further aspects into account, such as regional differences in the tax base or in the effectiveness of tax
administration and collection. This is indeed possible as the Australian example demonstrates. If the view is taken that
such differences are negligible in Germany, there is no need to standardize revenue beyond the present provisions for
municipalities. However, the necessity to standardize will expand with the scope for greater taxing autonomy of states
and municipalities. This is essential for all proposals that embrace the idea of granting the states greater taxing
Relative needs criteria are to be translated into „necessary“ expenditures—again at a standardized level. The basic
approach is to define the costs of providing standard public services among various governments at any one level. An
ideal procedure would be to form appropriate expenditure categories for which these needs are quantified in accordance
with statistical methods that could vary among categories. This is easier within the Anglo-Saxon world of vertical power
sharing than in the highly entangled fiscal arrangements in Germany, which would seem to call for a certain degree of
29 50 See, for instance, Wissenschaftlicher Beirat beim Bundesministerium der Finanzen (1992); Sachverständigenrat zur Begutachtung der
gesamtwirtschaftlichen Entwicklung (1992), Nos. 363ff.; Peffekoven (1994); Huber and Lichtblau (1997); Renzsch (1999); Rosenfeld (1999);
Kronberger Kreis (2000).
This is the reason why the legislature was so ingenuous to “weigh” populations in favor of city states, a procedure criticized by the Court.
The Australian approach is to standardize budgets—fiscal capacity as well as revenue needs and costs—in order to determine the relative position of
any one state relative to the average for the assignment of the Commonwealth’s general revenue grants. See, for instance, Rye und Searle (1997), or
Spahn and Shah (1995). Commission on Fiscal Imbalance 30 „disentanglement“ (Entflechtung)—indeed popular request in Germany. However, in spite of meshed expenditure
functions and a complex net of financial arrangements including cofinancing, there is a clear solution to solving such
problems if element (3) is taken into account properly. It would imply that the various forms federal grants would have to
be considered as strengthening own fiscal capaciti...
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