Geoscience Reference
In-Depth Information
Two reasons account for the success of this alternative proposal. First, it
is incremental. Second, from the standpoint of the revenue capacity of the
l ander (and in stark contrast with Weigel's proposal), it is Pareto optimal in
that, if implemented, it would leave no Land worse than the federal proposal
(Renzsch 1998). The alliance among l ander across party lines, orchestrated by
Oskar Lafontaine (SPD) and Kurt Biedenkopf (CDU), successfully prevented
the federal government from shifting the cost of Reunification to lower levels
of government. As a result, the would be losers under Weigel's proposal need
not exercise their veto in the Bundesrat. The unanimous endorsement of the
alternative to Weigel's proposal led to the approval by
consensus
of the CDU
(Christian Democracy), the SPD (Social Democracy) and the FDP (Liberals) of
the Solidarity Pact.
The main provisions of the agreement to allocate the costs of Reunification
are as follows (Lehmbruch
1996
; Renzsch
1998
: 127-146): 1) Full inclusion
of the eastern l ander in FA as of January 1, 1996; and 2) adoption of a set of
measurements to prevent heavy financial consequences to be met by western
l ander. These include:
a) Extra federal grants in aid up to 36 DM billion to balance the German
Unity Fund;
b) An agreement by the federation (Bund) to assist eastern l ander with extra
payments of 20.6 DM billion a year for a period of ten years;
c) Concessions to the financially weak western l ander of 1.34 DM billions
a year for a period of ten years, as well as a reduction in their share of
the debt service of the German Unity Fund;
d) The Bund takes the service of the debt generated by the Treuhandstalt,
the ruinous entity in charge of privatizing public firms in East Germany;
e) It was agreed that points a) to d), above, were to be financed mainly by
selective spending cuts and by a small solidarity “surtax” (up to 5.5%)
on income and corporations from 1996 onward;
f) And, last but not least, it was decided to further decentralize VAT: the
l ander share of VAT turnover would rise from 37%to44%.
Overall, the final agreement implies an increase of resources to all l ander funded
primarily by marginal increases in income taxes, indirect taxes, and, over time,
growing social security contributions (Streeck
2009
; Wiesenthal
2003
). Reuni-
fication triggered an increase of both interpersonal and interregional redistri-
bution born primarily on the shoulder of western tax payers and consumers.
The Incorporation Effort: Quantitative Evidence
The size of the redistributive effort toward the East through the combined effect
of interpersonal and interregional redistribution is unprecedented and appears
consistent with the logic developed in the theoretical argument of the topic.
The political incentives of federal elites, given the system of representation
