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Fiscal Fragmentation in Decentralized Countries

Subsidiarity, Solidarity and Asymmetry

Edited by Richard M. Bird and Robert D. Ebel

Most countries, developed and developing, are fiscally decentralized with regional and local governments of varying importance. In many of these countries, some of these sub-national governments differ substantially from others in terms of wealth, ethnic, religious, or linguistic composition. This book considers how fiscal arrangements may strengthen or weaken national solidarity and the effectiveness with which public services are provided. In particular, the nation’s ability to cope with changes created by decentralization is explored.
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Chapter 4: Germany at the Junction Between Solidarity and Subsidiarity

Paul Bernd Spahn and Jan Werner


Paul Bernd Spahn and Jan Werner The modern German federation was established only after World War II—for the western states in 1949—and half a century after its inception it appears to be strong and more robust than ever despite unification with the formerly socialist East Germany (see Figure 4.1 for a map of Germany). Germany is widely seen as having acquired functioning democratic institutions and a reliable political system that has even influenced the design of intergovernmental relations at the supranational level in Europe. Nevertheless, Germany, perhaps more so than many other nations, now finds itself at the junction of a historic choice between solidarity and subsidiarity. This is because, over the years, Germany has consistently sacrificed subsidiarity, and hence regional diversity, in favour of national solidarity. Solidarity has now attained a level at which the flexibility and responsiveness of subnational governments, notably the 16 states, have been severely impaired. In particular, interregional equalization appears to be grossly inflated—conspicuously so since Germany’s unification—an assertion that even the Constitutional Court has supported in a recent ruling on the Equalization Law. HISTORICAL BACKGROUND AND SETTING The present state of German federalism can only be understood against its historical background. During most of the 19th century, Germany consisted of a patchwork of mini-states subject to the hegemonic interests of both the German-speaking superpowers, such as Austria and Prussia, and the centrally controlled European nation states, such as France, Russia and the United Kingdom. The German ambition at that time...

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