Marginal burdens in the federal state fiscal equalization

Growing tax revenues of a federal state or its municipalities lead to lower compensation claims in the federal state fiscal equalization. This creates high marginal burdens on the federal state budget and the overall budget of the states and municipalities. Their quantitative determination does not require a simulation of the entire federal state fiscal equalization. The author develops a model that enables an exact and transparent determination of marginal burdens using the population figures of federal states and the population weights for state and municipal taxes. The driving force behind the maximum burdens are the new supplementary federal grants for under-proportional municipal tax revenue. Their abolition is recommended as the primary reform option for a more incentive-friendly design of the federal state fiscal equalization. © 2020, The Author(s).