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members (Brandenburg, Mecklenburg-Vorpommern, Saxony, Saxony-Anhalt,
and Thuringia), amounting to about twenty-two million citizens. Third, I
describe the multiple efforts to incorporate the East into systems of both inter-
personal and interregional redistribution during the period 1990-1994. Fourth,
in so doing I analyze the relationship of preferences, political constraints, and
political incentives during the incorporation process. And finally, in section
five, I analyze how these preferences evolve over time after 1995, fostering
new distributive conflicts over the design of both interpersonal and interre-
gional redistribution. Again, the way these conflicts resolve illustrates well the
interplay between economic geography and political representation in conflicts
over the design of fiscal structures. I close the chapter by drawing out the core
theoretical implications of the analysis.
GERMANY'S FISCAL STRUCTURE BEFORE REUNIFICATION:
THE EXISTING INSTITUTIONAL DESIGN
Scholars of federalism often cite Germany as the case that best illustrates the
compatibility of a federalist structure of government and a generous and com-
prehensive welfare state (Obinger, Leibfried and Castles
2005
). Indeed, by com-
parative standards, the German welfare state compares well to those of many
centralized countries. By 1985, for instance, the German fiscal system managed
to reduce the level of household income inequality from a Gini coefficient of
0.40 (pretaxes and transfers) to a Gini coefficient of 0.26 (disposable income).
By 1990, reflecting data of the period immediately preceding the Reunification,
the same numbers were 0.41 and 0.25 respectively. The level of fiscal effort
these figures imply is much closer to Scandinavia than it is to other advanced
industrial federations such as Canada or Australia, let alone the United States
(Beramendi and Cusack
2009
).
This apparent compatibility between federalism and the pursuit of solidarism
has deep historical roots. In an excellent historical overview of the relationship
between federalism and social policy in Germany, Manow (
2005
) shows how
some of the central aspects of Germany's fiscal structure reflect compromises
between the central government and the l ander in a number of historical junc-
tures. Four aspects of Manow's account are relevant here. First, social policy
serves, from the very early existence of the union under Bismarck, as a tool to
expand the power of the central government relative to the states. The compro-
mise between the two produced a system of overlapping jurisdictions across
policy domains, state boundaries, and different stages of the policy process.
Second, this political expansion in new policy domains requires revenues for
which the central government's share is clearly insufficient. Bismarck tried to
fund social policy through taxation, but failed due to the opposition of the
states. As a result, social insurance contributions become the primary source
of revenue for social policy (Mares
2003
).
Third, the socialization of risks in the interwar period propelled the cover-
age expansion and the centralization of social policy during the Weimar years.
