Integration, decentralization, taxation, and revenue sharing : Good governance, sustainable fiscal policy and poverty reduction as peace-keeping strategies

Table 2: German Tax System – Classification by Jurisdictional Level 
 
Common taxes 
 
Federal taxes 
 
State taxes 
 
 
Local taxes 
Wage tax 
Tax on 
gasoline 
Automobile tax 
Firms tax 
Assed income 
tax 
Tobacco tax 
Inheritance and 
gift tax 
Land tax 
Firms tax 
revenue share 
Tax on alcoholical 
beverages 
Beer tax 
Other local 
taxes 
Corporation 
tax 
Insurance tax 
Other state taxes 
Capital income 
tax 
Tariffs (imposed 
for the EU) 
Value added 
Tax (VAT) 
Solidarity 
surcharge 
Source tax on 
interest payments 
Other federal 
taxes 
In case of a 
common tax pool
, the pool might be defined for single taxes, a group of 
taxes or the whole tax system. The degree of decentralization heavily depends on 
the legislative sovereignties and the regulations how the tax revenue is distributed on 
the participating jurisdictional levels. A fully centralized system has the legislative 
sovereignty and the administrative sovereignty at the central level. If concurrent legis-
lation is implemented in the constitution, lower jurisdictional levels are allowed to par-
ticipate in the legislative decisions so that such system is more decentralized. In a 
quota system at first the included taxes and secondly the quotas for the participating 
jurisdictional levels in the vertical direction (central state, member states and com-
munities) have to be defined. Thirdly the rules have to be determined how the total 
tax revenues of all the included taxes have to be distributed on the single jurisdictions 
of the same jurisdictional level (horizontal direction). 
For example table 3 and figure 3 represent the vertical distribution of the tax revenue 
regarding the taxes in the common tax pool in Germany. The wage tax and the as-
sessed income tax revenues (as part of the income tax) are shared by 42.5 % for the 
federation and the member states and 15 % for the communities within the member 
states. The corporation tax on corporate entities and the capital income tax revenues 
are distributed by 50 % on the federation and the member states, the VAT by 50.5 % 
for the federation and 49.5 % for the member states after a prior deduction of 2.2 % 
for the communities and an amount of 2,3 billion Euro for the federation.
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The 
source tax on interest payments (also part of the income tax) is shared by 44 % for 
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For more details see Gesetz über den Finanzausgleich zwischen Bund und Ländern (Finanzaus-
gleichsgesetz – FinAusglG) under http://www.buzer.de/gesetz/1608/b4560.htm. 

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