Financing the German Federal System in the 1980s

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Public finance is a crucial issue in any federation. In the system of shared public financing in Germany, no unit of government is fiscally dependent on the other. The federal and Land governments share the personal income tax, the corporation tax, and the value-added sales tax. Because the Bundesrat approves of the shares of these tax yields granted the federal and Land governments, the Lander are deeply involved in the public finance system. Fiscal equalization occurs both vertically and horizontally. The federal government provides the Lander with grantsin-aid, and also shares the financing of a number of joint tasks. The Lander share their tax yields with their local governments. Fiscal transfers also take place among the richer and poorer Lander and among the municipalities within the boundaries of individual counties. Controversy exists over the shares to be given the respective governments from the value-added tax and over fiscal equalization between the richer (South) and poorer (North) Lander.