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Unformatted text preview: rmance must be worth it. Only if it pays to perform well there is an incentive to do so. Additional competition among
the states creates an incentive to create in turn room for financial manoeuvre and thus open up opportunities for political
diversification. The citizens identify themselves with their state’s politics. If sensible policy-making attracts attention,
special efforts made are being rewarded which also counteracts a disenchantment with politics.
Of course that does not mean that we intend to withdraw and discontinue our solidarity particularly with Germany’s new
states. After all it was Bavaria’s proposition for a revised financial equalization to integrate the new states financially as
of 1995, which was accepted by mutual agreement by the confederation and all 16 states. After transitional financing by
the German Unity Fund, which was backed by the confederation and Germany’s western states, and from which about
160 billion German Marks were paid to the eastern states between 1990 and 1994, they became fully integrated in the
financial equalization among the states as of 1995 as proposed by the state of Bavaria. Estimates pegged additional
financial requirements at roughly 30 billion German Marks per year, a sum of which two thirds were covered by the
confederation, and one third by the states. When these issues were settled in 1992 and 1993, there was simply not
enough time to give much thought as to the rationality and the incentive power of such a system - at the forefront we had
the difficult task of integration.
However, over the past few years the system’s lack of incentive momentum has become increasingly apparent, followed
by a subsidy-minded mentality that cannot be kept up over the long term. The deficiency payments have increased year
after year and it was impossible to predict when the financial equalization among the states would eventually live up to
its basic idea: to be a help for self-help. People had settled in with this system of deficiency payments which did not call
for individual responsibility. As a result of the near perfect balance, created in particular by the federal additional grants
made after the financial equalization among the states, there has indeed been no incentive to try very hard.
If the city state of Bremen for example produced 100 German Marks in additional revenue, all it was eventually left with
was one single German Mark, the other 99 Marks were “taxed away” because of a reduction in compensation payments
to this state (chart 2 shows the results for the other states).
The scissors between the five federal states that pay for the financial equalization among the states (Bavaria, BadenWürttemberg, Hesse, North Rhine-Westphalia, and Hamburg), and the receiving states has opened up considerably
towards the donor states. The state of Hesse, which is most affected by this situation, pays by far more than 10% of its
state budget into the financial equalization, and thus to other states (chart 3 shows an overview of the payments made to
the receiving stat...
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