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previous contributions, as these two programs are primarily funded through
earmarked contributions by employers and employees. Old Age Insurance is
administered by theMinistry of Labor and Social Policy and a dedicated agency,
the Federal German Pension Insurance. Likewise, Unemployment Insurance
is run by the Ministry of Labor and the Federal Employment Agency, with
local agencies helping out with job placement and benefit administration. The
important point to remember, though, is that for any given industry, the con-
tribution rates and benefit entitlements for unemployment and old age insur-
ance are nationally uniform. In turn, other income support programs (such as
family related benefits, sickness insurance, survivor benefits, or housing ben-
efits) are funded through taxes and administered jointly by the central and
state governments. The second feature concerns low income support policies
(non contributory social assistance). These policies are funded and managed
by local authorities, on the basis of resources transferred from the federal and
state governments.
1
This equal treatment of individuals across unequal territories, and the fact
that a significant share of the social policy effort is either fully funded and
administered or implemented by subnational governments, raises once again
the problem of resource allocation across different territories. Herein lies the
third feature of Germany's fiscal constitution: the main locus of contention is
not so much the nature of social policy, but the distribution of resources across
territories and levels of government (T). In what follows I characterize how
Germany's fiscal constitution dealt with this issue prior to the Reunification in
1990.
The system of allocation of resources among territories is divided into two
branches: the Trennsystem and the Verbundsystem. The former represents 30%
of the total tax revenues in Germany and it includes all taxes whose revenues
are exclusively run by one territorial level. The left half of
Table 6.1
describes
the Trennsystem by way of listing the tax items exclusively in the hands of each
level of government. The right half of
Table 6.1
illustrates the distribution of the
different taxes within the Verbundsystem across different levels of government.
Note though that the fact that the Verbundsystem is uniform across regions
does not imply that the l ander lack political input in its design. They have input
via its legislative capacity in the Bundesrat (Leonardy
1996
: 73-85; Spahn
1993
: 89-97, Spahn and Franz
2002
).
The guidelines of the Verbundsystem were established in the reform of the
financial constitution,
Finanzverfassungsreform
of 1969. The Verbundsystem
itself is organized around two dimensions:
Primarer Finanzausgleich
, verti-
cal distribution of revenues among the Bund, l ander, and municipalities; and
Sekund arer Finanzausgleich
, or horizontal adjustments between richer and
poorer l ander (also called Landerfinanzausgleich). The term Finanzausgleich
(from now onward FA), as normally used, refers to this second dimension
1
For a more detailed characterization of Germany's social security and income support programs,
see Flockton (
1999
); and Mathias (
2003
).
