The New Federal Fiscal Equalisation System 2020: First Results and Evaluation

Abstract

Abstract The new Federal Fiscal Equalization System became effective on 1 January, 2020. While all public budgets in the federal system of Germany were faced with high decreases in revenues caused by the measures to fight the impacts of the COVID-19 pandemic in 2020, a first evaluation shows that the differences to the old system are rather marginal. The focus now lies on the vertical distribution of the value-added tax, whereas for the fiscal capacity equalisation only revenue of the Laender are used as before. In fact, the supplementary federal grants, the federal grants for special needs and very critical new federal grants are still problematic and a strong signal for centralisation.