Fiscal federalism in Germany

Abstract

From the year 2020 onwards, major constitutional changes have inverted former principles of German fiscal federalism and have led to further vertical fiscal imbalances. The latest reform of Germany's fiscal federalism strengthens the federal level in general and the executive branches at the federal and state (Laender) tiers of government in particular at the expense of the Laender and their parliaments, respectively. In view of this development, this chapter provides an overview of the components of fiscal federalism in Germany. After providing a brief characterization of the country, we discuss the division of fiscal powers, the possibilities for the different levels of government to generate revenues, and the system of intergovernmental transfers. Besides describing the current situation, we discuss how the latest reform act has changed these dimensions of fiscal federalism since 2020.