Volker Wieland and Kronberger Kreis call for a real reform of the financial relations between federal government and the Länder

Federal and state governments are currently discussing the restructuring of their fiscal relations as the existing regulations will expire by the end of 2019. The federal government has promised to tackle the federal fiscal equalization system in this legislative period. The federal states have already presented a proposal. The members of the Kronberger Kreis including Volker Wieland have analyzed the consequences of this proposal and in come forward with a framework for a "real reform" in a new study.

Since the system is based on redistribution to a large extent there are no incentives for the borrowing states to cut spending or try to strengthen their income base, the economists criticize in their study. They do not consider the states' proposal to be an improvement. Instead, the members of the Kronberger Kreis are concerned about a lack of democratic control and fiscal responsibility. In their view, the proposition of a joint bond of the federal states will lead to an additional financial burden of 9.7 billion euro a year, which the tax payers would finally have to bear.

The members of the Kronberger Kreis now call for abolishing exceptions like the calculations regarding the number of inhabitants ("Einwohnerveredelung") and instead, introducing a higher level of transparency. In their opinion, more fiscal authority has to be granted to the Länder.

Kronberger Kreis Study No. 62
Lars P. Feld, Clemens Fuest, Justus Haucap, Volker Wieland, Berthold U. Wigger
„Für eine echte Reform der Bund-Länder-Finanzbeziehungen“
51 pages, PDF in German