Subsidies are selective benefits granted by the federal government, states, municipalities and other state institutions in favor of selected branches of production and ultimately certain groups of persons. A comprehensive picture of the volume of subsidies can only be obtained if, in addition to subsidies to enterprises, institutions are included that are not part of the company sector but nevertheless produce private goods or services. The subsidies add up to a volume of 156 billion euros in 2001. This corresponds to 7.5 percent of the gross domestic product and 35 percent of the tax revenue. Far more important than the tax credits (40 billion euros) are the grants (116 billion euros). The subsidies, which can be allocated to the individual sectors, amount to 86 billion euros; of this, 76% is accounted for by agriculture, mining, transport and housing construction. In addition, there are 25 billion euros spent on cross-sectoral projects, such as regional development or employment, and 45 billion euros, which the state invests in favor of (semi) state-owned producers, such as Hospitals and agricultural chambers. Taxpayers ultimately have to raise these amounts. Subsidies are – at least in the medium term – associated with an increased tax burden. In addition, economic costs are incurred if the state benefits certain activities on balance and inevitably burdens others. The political leaders often emphasize the need and the intention to reduce the subsidies sustainably because of their harmful effects. The declarations of intent are rarely followed by concrete acts. Cuts in subsidies can significantly reduce income tax rates. For example, if the subsidies were removed altogether within a period of five years, income tax rates could ultimately be reduced by almost two-thirds. For example, the input tax rate (including solidarity surcharge) in 2001 could have been 7.7 instead of 21.0 percent, the top tax rate 18.8 instead of 51.2 percent. Helpful in seeking to reduce subsidies would be reforms of the financial system, such as the strengthening of the self-responsibility of the states and the municipalities in the tax policy. The reduction of subsidies can also be helped by international tax competition. It puts pressure on policy-makers to make public expenditures such as to review the grants.