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

 
Federal Tax Authori-
ties
 
State Tax Authorities
 
Local Tax Authorities
 
Federal Ministry of 
Finance
 
State Ministries of 
Finance
 
Revenue Directorates 
Main Customs Offices, 
Customs Investigation 
Office, 
Federal Property Office 
and 
Federal Office of For-
estry 
 
 
Revenue Offices 
 
 
Local Revenue Offices, 
Town Revenue Offices 
administration of spe-
cial federal taxes: 
- tariffs 
- consumption tax 
determined by federal 
law including value
added tax on imports 
and beer tax 
- finance monopolies 
- duties as effected by 
the EU 
administration of state 
taxes + administration 
by order of the federal 
government:: 
- remaining federal
taxes and common
taxes 
- tax assessment 
administration of local 
taxes 
A short view on the member states equalization system will demonstrate how such 
horizontal equalization schemes work. Taking the local tax revenue distribution into 
consideration the fiscal capacity for the 16 federal states is in between 35 % (in some 
new states) of the federal average to almost 200 % (in the seaport and city state 
Hamburg). If the VAT revenue is distributed per capita (inhabitant), the fiscal capacity 
ranges in between 55 % and about 150 %.
34
Then within the State Fiscal Equaliza-
tion Scheme parts of the VAT revenue
 
are distributed in favor of the poor member 
states (up to 25 % of the revenue) until the poor member states have reached 92 % 
of the average fiscal capacity. The remaining revenue (up to 25 % of the total reve-
nue) is then distributed by the population numbers. This also means a more or less 
strongly redistribution compared to the original revenue distribution. Then further tax 
revenue of the rich member states is transferred in favor of the poor until they have 
reached 95 % of the average fiscal capacity. Finally the federal state pays supple-
mentary federal grants
 
to the poor member states so that all of them reach 99.5 % of 
the average fiscal capacity. Then the fiscal capacity ranges from 99.5 % to about 
105 % of the average fiscal capacity. 
34
For more details see Petersen et al. (2001). 

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31
Figure 9 presents a map of the Federal Republic of Germany where the net paying 
states are drawn in green color and the receiver states in yellow up to red depending 
on the level of net transfers they receive.