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Unformatted text preview: ncerning the detailed adjustment of the turnover tax may be, they are also an
important element of security. They prevent the confederation from trying to carry out its departmental policy-making at
the expense of the states. 56 Commission on Fiscal Imbalance Still, in accordance with the ruling of the Federal Constitutional Court in 1999 concerning the financial equalization
among the states (which I will address later), Bavaria would like to change this situation as well. If the actual expenditure
is referred to as authoritative in comparing the regular income items in relation to the necessary expenditure this bears
the consequences that there is no incentive to be economical: if one government level increases its expenditure the
other has to bear half of that cost. The confederation and the states have decided to eliminate this weakness. 3.3. Conciliation of Interests
When we speak about this distribution of public revenue we always refer to the distribution among the confederation on
the one hand and the 16 states on the other. This is a highly significant aspect as all states have similar interests when
the distribution is subject to negotiations again every couple of years, it makes therefore sense for them to team up for
the negotiations to have a more powerful say. This is the reason why the confederation frequently applies the philosophy
“share and rule”, meaning it tries to break up the solidarity among the states to challenge the confederation by making
special grants or benefits to individual states. However, each state is fully aware that a good result on the vertical level of
distribution - i.e. among the confederation and all the states - eases the subsequent debate dealing with the financial
equalization among the 16 states, which is carried out after horizontal distribution of public revenue has been dealt with.
These interests are looked after without regard to party-political issues. The premiers of the German federal states
therefore have a familiar quotation: “state interests overrule party interests”. 4. THE DISTRIBUTION OF PUBLIC REVENUE AMONG THE STATES Distribution of tax revenue among the states (state taxes, states’ share in the revenues from income tax and corporation
income tax) is carried out according to the principle of local yield: the tax money remains where it has been collected by
the fiscal authorities. The local revenue is so to speak a natural indicator for the size of the share, because it reflects
pretty accurately its citizens’ and economy’s actual efficiency to produce revenue - that is to say the region’s efficiency to
produce revenue. If a company’s management and its place of operation are not in the same location for corporation
income tax or if an employee’s place of work (where income tax is collected) and place of residence are not in the same
area there are regulations which govern the splitting of such revenue per location.
There has been an ongoing debate on the issue of income tax and whether it should be collected...
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