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may be at the state level, which entails economic inefficiencies and waste of public resources. 23 24 48 Such features of grant arrangements are not unique for Germany only. For instance, François Vaillancourt has drawn my attention to a statement by
the minister of finance of Newfoundland according to which 85 percent of new revenues from opening the Voisey bay nickel mine would be lost as
The data underlying this graph are taken from Ebert and Meyer (1999), p. 108 Commission on Fiscal Imbalance An indirect indicator for the inherent drift toward moral hazard is perhaps found in the debt ratio of the different states. If
it were so that the consolidation of state budgets through compensating grants would counteract tendencies toward
state indebtedness, then those states that benefit most from the Finanzausgleich (including federal grants) would likely
to be at least as good in terms of their debt per capita ratio than the other states. In order to examine that proposition,
this indicator was derived for those eight states that top the list in terms of fiscal capacity post redistribution (among
them all Eastern states) and compared to the same indicator for the “poorer” eight states post redistribution (among
them the more affluent states ante redistribution), the following picture is obtained (see figure 7).
FIGURE 7 The eight “richer” states before equalization (that end up in the category of comparably “poorer” states after federal
equalization grants) , have continuously, but moderately, extended their per-capita debt during the period 1991 through
1997 (from DM 4,740 to DM 6,610). However, their “poorer” counterparts before equalization (that end up as comparably
“rich” states after grants)26, have demonstrated a much more aggressive behavior as to debt per capita over that same
period. True, the stronger debt dynamics of this group is explicable because it includes the formerly sot states with
their special situation (they started with zero debt after unification), but it is hard to accept that their per-capita debt
should have outstripped by now that of their counterparts in an almost unbridled manner. This empiricism could be
considered an allusion of moral hazard being encouraged through the system of intergovernmental fiscal relations in
Germany. It would call for a more fundamental review of the relationship between interregional solidarity and subsidiarity
in that country, and of equalization policies and constitutional provisions in particular. 25
26 These are the states Baden-Wurttemberg, Bavaria, Hamburg, Hesse, Lower Saxony, North-Rhine-Westphalia, Rhineland-Palatinate, SchleswigHolstein with a total of 62.8 million inhabitants).
These are the states Berlin, Brandenburg, Bremen, Mecklenburg-Vorpommern, Saarland, Saxony, Saxony-Anhalt, Thuringia with a total of 19.2
million inhabitants. 49 Commission on Fiscal Imbalance 5. STRIKING THE BALANCE BETWEEN SOLIDARITY AND SUBSIDIARITY In view of mounting criti...
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