ABSTRACT
Determining the welfare maximising number of government layers and the optimal allocation of fiscal tasks to them is always a difficult question. In Germany, wrong incentives caused by the fiscal equalisation system and the consequences for budgets in severe financial distress pose only some of the economic problems within the fiscal system. Several proposals for the implementation of new fiscal rules are discussed in stage 2 of the federal reforms. However, taking political considerations and the restrictions of the existing system into account, the most likely results of the second reform stage will include solutions for only the most pressing problems, i.e. debt brakes and implementing rules for debt relief or consolidation aid. Consequently, reform necessities will remain even after the Föderalismusreform II.
