Funding of German Lander, Mechanisms and Solidarity

Abstract

Germanyis a federal state made up of 16 constituent states, called Länder. Considering the country’s history of division between West and East and the wealth gap which is still much alive between the two regions, German authorities have decided to put in place solidarity mechanisms in order to restore some balance.

The purpose of this article is to gain an understanding of all these mechanisms and assess their impact, based on the rules and formula provided by the German law and on calculations for the year 2010. This article clearly highlights the very redistributive character of the German system and even reveals a paradox of revenues, leading to the poorest Länder becoming some of the wealthiest and vice versa.