Working Paper

Financial aid payments granted by the German federal states (original publication in German)

Kieler Diskussionsbeiträge, 293

The financial aid payments of the federal states are considerable. For the year 1995, a total amount of DM 83.8 billion was calculated. It accounts for almost one third of the total income tax revenue in Germany. In determining the grants awarded, the term "subsidy" was not defined as narrowly as in the traditional approach: While the conventional definition takes into account only selective benefits to companies in the sense of national accounts, the author includes the government agencies and non-profit organizations, if they are producing "private "goods and provide "private" services in the sense of in accordance with welfare theory. The limits of the broad definition are where production purposes create significant external benefits or charitable activities are promoted. In the narrow traditional definition federal states’ subsidies still account for DM53.4 Billion. In the East German territorial states, they are four and a half times as large as in the West German sectoral areas. As regards branches, crisis industries such as agriculture, mining, shipbuilding and "old industrial cores" get subsidies as well as areas such as public transport, social housing, hospitals, kindergartens, theaters and museums. The granting of grants hinders the development of modern and future-oriented production structures and should therefore be reduced also in the area of the federal states.

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Publication Date
JEL Classification
H29, H71