commission on fiscal imbalance 合集

State taxes are defined in paragraph 7 1

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Unformatted text preview: stribution of the corporation tax requires a formula apportionment of income for firms with multiple regional activities (Zerlegungsgesetz), and the assignment of personal income taxes according to residence favors residential areas over production sites—which could be critical for municipalities and city states. It should be noted, however, that the federal government was partially compensated by higher federal taxes (in particular on mineral oil) and by a federal “solidarity” surcharge on the income tax. At present (2000), the federation is entitled to an initial deduction of 5.63 percent of VAT in compensation for supplementary contributions to the national pension system. The municipalities are participating in the sharing of VAT since 1998 (article 106 section 5a GG). Their entitlement is 2.2 percent prior to the sharing of VAT among the federation and the states. State taxes are defined in paragraph 7 (1) Finanzausgleichsgesetz. 41 Commission on Fiscal Imbalance The implicit redistribution effects of VAT sharing are often underestimated. When considering only the new states of the East (without Berlin), their tax potential was only 43.8 percent of the national average per capita before VAT distribution, but reached a level of 84.6 percent of the national average after VAT revenues had been included.15 It implies that these Eastern states acquire roughly twice as much VAT revenues per capita than their Western counterparts. The redistributive effects of VAT sharing among states are illustrated in figure 1.16 FIGURE 1 At a second level, there is the Finanzausgleich scheme, a redistribution of resources among the states. Such a scheme is logical for a situation where there are no vertical fiscal imbalances. If such imbalances did exist—as in Australia in favor of the Commonwealth, or in the EU in favor of the member states—, regional equalization schemes would typically be implemented in the form of vertically asymmetrical per capita grants (downwards in Australia, upwards in the EU). In the absence of such vertical imbalance, however, regional equalization must be arranged horizontally among the participating states (see figure 2). Germany is unique in having created such a system, which is, of course, based on a federal law reigning the mechanics of the scheme with uniform rules. 15 16 42 State taxes as in footnote 14—benchmark for compensation through supplementary VAT transfers—do not comprise VAT itself. This is why the share including VAT will remain below the yardstick of 92 percent mentioned before. Source: BverfG (1999). Commission on Fiscal Imbalance FIGURE 2 Whatever approach is taken, there must be clear procedures and firm criteria that govern equalization. At the international level, interregional equalization schemes have adopted varying philosophies. ♦ In the United States, for instance, an explicit regional redistribution program is nonexistent, but there are implicit equalization effects resulting, for instance, fr...
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This note was uploaded on 03/06/2013 for the course ECON 220 taught by Professor Paulo during the Spring '13 term at University of Liverpool.

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