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Germany's Reunification
Distributive Tensions and Fiscal Structures
under Centripetal Representation
An important argument in this topic is that the organization of political rep-
resentation in complex unions conditions the relationship between the distri-
bution of preferences in a particular federation and the actual design of fiscal
structures. In the previous chapter, I analyzed how U.S. Southern senators were
able to maximize their local interests during the elaboration of the Social Secu-
rity Act. They managed to do so because of their pivotal position in the Senate,
in turn guaranteed by a direct and persistent link between elected officials and
represented constituencies.
This chapter examines a contrasting case, in which a radical transformation
of the geography of inequality has not resulted in institutional reforms con-
ducive to the protection of particularistic interests: the evolution of Germany's
fiscal structure after Reunification. This process meant the incorporation into
the union of five new l ander and over twenty-million citizens significantly
poorer than the western l ander. Yet the German fiscal structure displays a
remarkable continuity of preexisting arrangements, large levels of transfers
from the West to the East, and an absence of any real move toward larger
levels of fiscal decentralization despite a large increase in levels of interregional
income disparities. Hence the puzzle: if economic geography drives the selec-
tion of fiscal institutions, what accounts for the absence of a major reconfigu-
ration of preexisting arrangements? What has muted the transmission of larger
levels of regional income disparities into larger levels of fiscal decentralization?
The answer to these questions combines two distinctive elements: first, the
specifics of the institutional design of the German federation, and its effects on
both the incentives and ability of regional incumbents to pursue “local” special
interests; second, the nature of Reunification as a shock, and its implications
on levels of risk sharing among l ander.
In developing this answer, the chapter is structured as follows. To begin,
I present an overview of Germany's fiscal structure and institutional design
before 1989. I then analyze the exacerbation of distributive tensions associ-
ated with the incorporating into the union five Eastern and significantly poorer
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