Side Payments Over Solidarity: Financing the Poor Cousins in Germany and the EU. ACES Cases No 2006.2

Jacoby, Wade. (2006) Side Payments Over Solidarity: Financing the Poor Cousins in Germany and the EU. ACES Cases No 2006.2. UNSPECIFIED.

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Abstract

What happens when governments that have benefited from programs to redistribute money from richer to poorer states are faced with the prospect of being redefined as a “richer state” themselves? In recent years, such a situation has confronted the traditionally poorer states of Western Germany and the traditionally poorer nations of the European Union. Both have had to worry that systems of financial solidarity that benefited them in the past might change to benefit a new set of potential (and arguably needier) recipients. In the German case, reforms of the tax equalization system might channel funds to the new eastern Länder while in the EU case, reforms of the structural funds might channel funds to states in Central and Eastern Europe. It turns out that funding was generous in the East German case but decidedly not in the CEE case. Why? Neither partisanship nor feelings of solidarity towards these “poor cousins” seem to have much explanatory purchase. Rather, the strong institutional positions of the traditionally poorer states in both cases, meant that the key factors shaping the outcomes are the electoral exposure of the respective central governments and the presence or absence of hard budget constraints on that political center. The differences in process and outcomes have important implications for the study of federalism.

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