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von Hagen, Jürgen
Hepp, Ralf
Year of Publication: 
Series/Report no.: 
ZEI working paper B 15-2000
We provide empirical estimates of the risksharing and redistributive properties of fiscal equalization among the states of the German federation. Fiscal equalization serves as a mechanism to insure state budgets against asymmetric revenue shocks, but provides almost no insurance against regional income shocks. Equalization responds only weakly to income differentials but strongly to tax revenue differentials across states. A further result is that the correlation of state tax revenues with state GDPs has declined over time. This may reflect a weakening in state tax efforts in response to the adverse incentive effects of fiscal equalization.
Regional Risk-sharing
Fiscal Federalism
Monetary Union
Document Type: 
Working Paper

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