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

Figure 7: System of Tax Identification Numbers (TIN) 
Usually the structure of the IR follows the jurisdictional composition within the federal 
state. Figure 8 represents the basic structure of the German internal revenue system. 
It becomes obvious that the federal tax authorities also collect the customs, duties 
and taxes, which revenue is then transferred to the EU level (see figure 5). 
Hence, a fiscal equalization system (FES) is composed of a tax sharing component 
and/or a component, which distributes public revenue vertically to other jurisdictional 
levels or horizontally to jurisdictions of the same level. If competitive federalism is 
aspired, especially vertical equalization takes place, which also might have redistribu-
tive impacts in the horizontal direction. If in a vertical FES the revenue is not distrib-
uted according to the local revenue but to average per-capita formulas then already a 
horizontal redistribution from the rich to the poor jurisdiction is implemented. This re-
distribution is more or less hidden in the central grants system. In consensus federal-
ism separate horizontal FES exist in which the redistribution is openly determined by 
equalization formulas, which favor the poor member jurisdictions. Therefore, receiver 
jurisdictions and net payer jurisdictions exist. In Germany, for instance, such systems 
are implemented on the member states level (Länderfinanzausgleich) and for the 
communities within the member states (Gemeindefinananzausgleich). 
Identification number of the IR 
(revenue office) 
Identification of the single tax 
Identification number of the household 
(taxpayer) H 
Identification number of the firm 
F 
Shareholders of the firm (e.g. four): 
UH 
UH 
UH 
UH 

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Figure 8: Structure of the Internal Revenue Service in Germany