Fiscal Federalism and Social Policy in Germany

In the literature on welfare state reforms, continental welfare states like Germany have been considered to be resistant to reform. However, recently scholars started to argue that new reform coalitions and policy learning have led to a major restructuring of the German welfare state. In this article we introduce a third argument into the debate and claim that the recent reforms can only be understood by taking into account the specific structure of welfare state financing in Germany. Focusing on the reform of unemployment benefits we show that the crisis of the widespread cost-shifting practice between the federal budget, the social insurance and local authority budgets contributed to fiscal problems which could ultimately only be resolved by engaging in a fundamental restructuring of the financing architecture of welfare provisions for the long-term unemployed.