Why does the state financial equalization and municipal financial equalization promote inefficient action?

The state financial equalization and municipal financial equalization are considered essential instruments for federal redistribution in Germany with the aim of ensuring almost the same living conditions in all regions. But it is becoming increasingly clear that these systems create false incentives in practice that lead to inefficient behavior and unnecessary expenses and evenstrengthen.

The state financial equalization: burden on donor countries and lack of personal responsibility

As part of the state financial equalization, economically strong federal states make billions in billions of dollars in a joint compensation fund every year, from which financially weaker countries are supported. These transfer payments are now partially at record highs, since only a few main payers handle the majority. Critically it is noted: Fewer and fewer donor countries are bearing the burden forA growing number of recipient countries without the latter being sufficiently incentive to act economically on their own, to reform their structures or to increase tax revenue independently.

Lack of incentives for sustainable reforms in the recipient countries

A key problem is that additional revenue or savings in the recipient countries reduce the right to compensation. For example, if you invest in administrative modernization or implement structural policy reforms, your budgets will only benefit in the short term; In the long term, the additional income achieved is compensated for by the equalization. in returnIf high social expenses, cost-intensive supply standards or expensive infrastructure projects are not punished, but co-financed: The efficient use of funds is becoming less important, as miscalculations and deficits hardly have any serious consequences for the country’s budget. The political and administrative logic is therefore less sustainableEfficiency than in maintaining the status quo and securing compensation payments.

Inefficient incentives in municipal financial equalization

Municipal financial equalization has a similar problem on cities and municipalities. Here, key allocations are assigned according to general distribution rules, which means that communities in need, in particular, can receive above-average transfers. Municipalities that do not consolidate for years, adhere to costly prestige projects or inefficientMaintain administrative structures are not punished here either, but are continued to be financially supported. thrift, willingness to innovate and investment discipline are becoming less important; Instead, there are false incentives to justify mismanagement instead of actively remedying them.

Long-term consequences: reduction of personal responsibility and investment reluctance

The consequence of these structures is a creeping erosion of independent household management. In countries and municipalities that can permanently rely on transfer payments, necessary reforms are delayed or even omitted; Structural problems are covered with taxpayers’ money and new spending programs are constantly being launched, the benefit of which is questionable. This often results inDisproportionately high personnel costs in the public sector, an expensive expansion of social services or inefficient infrastructure investments. In extreme cases, projects that are neither economically nor demographically sensible, but appear symbolically or politically opportune, are funded.

The burden of economically strong countries and the social displeasure

It is also remarkable that economically strong countries themselves are forced to reset their own investments, while in recipient countries large projects or costly special programs are financed from funds that they do not generate themselves. Bayern in particular has been complaining for years of having achieved his high solidarity contribution as a point that has his ownSustainability and competitiveness at risk. At the same time, in view of the lack of consideration and a lack of personal responsibility in the recipient countries, structural resentment and the feeling of a systematically anchored redistribution trap are growing.

Long-term consequences: mismanagement, bureaucracy and innovation deficit

In the long term, this system not only undermines economic efforts, but also promotes inefficient bureaucracies, political risk aversion and a lack of innovative strength. Federal financial equalization – originally intended as an instrument of solidarity sharing of burdens – has thus developed into a mechanism that systematically rewards mismanagement and unnecessary expenditure andcontinues, instead of promoting transformations, thrift and future investment. A fundamental reform that is taking more differentiated, creating incentives for sustainable consolidation and efficiency increases and reducing false incentives has been demanded for years – but so far without any significant political changes.