Ecological public functions and fiscal equalisation at the local level in Germany

The concept of sustainability requires the acknowledgement and appropriate financing of ecological, economic and social public functions at all levels of government. Whereas the significance of socio-economic functions has a comparably long tradition in federal systems, the respective consideration of ecological functions is still waiting to be fully realised. The aim of this article is to analyse the roles fiscal federalism and fiscal instruments can play in addressing ecological public functions assigned to decentralised jurisdictions in federal systems. For this purpose, an investigation of intergovernmental fiscal relations and their significance for the local level is carried out by way of example for the Federal Republic of Germany. Based on a status quo analysis of the various German fiscal equalisation laws at the local level, the article presents options for systematically integrating neglected ecological functions and indicators into the existing legal framework. The empirical analysis shows that end-of-the-pipe and infrastructure-related ecological functions are already strongly integrated by way of conditional grants. However, precautionary functions such as nature and resource conservation issues are still largely absent. Therefore, a comprehensive consideration of ecological public functions in Germany calls for the integration of nature conservation issues and respective indicators into the system of intergovernmental fiscal relations. (C) 2002 Elsevier Science B.V. All rights reserved.