Publication

This paper discusses Germany's fiscal policy until the year 2004. The author holds that half of the country's GDP passes through the hands of government, a high debt to GDP ratio limits the maneuvering and the revenue sharing mechanism prevents a competitive federalism. Furthermore, he notes that transfers from the public budget to the social security systems are large and since 1998 the elasticity of transfers to nominal GDP is four. Taking these facts into account, the author concludes that Germany faces weak prospects for needed reform in its taxation and expenditure system.