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Ifo Center for Public Finance and Political Economy

Main tasks

The center’s research focuses on:

Fiscal federalism and local finances

In the context of the center’s first main research area of fiscal federalism and local public finances, it analyses fiscal policy decisions at various levels of government in a decentralised system. Key issues include the role of horizontal and vertical interactions in the area of taxation and fiscal competition, as well as the public service offering. The center cooperates with Thiess Büttner from the University of Erlangen Nuremberg in this field. One of the issues analysed, for instance, is the effects of allocation systems like financial compensation in the context of taxation and budget autonomy. Moreover, the center plans to conduct research into the budget composition of the German Länder and municipal authorities. The main aim of this research project is to create panel data sets on the expenditure structure of the German Länder and municipalities. The data sets should map the scope for discretionary decision-making enjoyed by German state governments and municipal councils in state spending, and reveal the expenditure for which state governments and municipal councils were responsible through their own decisions. Data sets compiled on the basis of this research project will be used to evaluate the degree to which the party-political composition of state governments and municipal councils, as well as the re-election concerns of politicians, influence budget composition.

Evaluation of fiscal and taxation policy

The second research focus is the regular evaluation of fiscal policy. This strand of the center’s research specifically examines relations within and between the various levels of government in the framework of the generation and the distribution of tax revenues. Key areas of application are the fiscal relations in Europe and the allocation of funds from the EU structural fund. The analysis of how fiscal systems in Germany and Europe are designed focuses specifically on efficiency in terms of the mobility of production factors, on the balancing of public budgets and on political economic considerations. The center also contributes to tax forecasts in Germany through its work with the working group for tax revenue assessments of the German Ministry of Finance. The tax assessments draw on information from the Ifo Center for Business Cycle Analysis and Surveys and are also used by the latter in its forecasting activities.

Public debt in Germany and Europe

Following on from the work carried out to date by Ifo’s president, one of the center’s main research areas in the future will be the government debt crisis Germany and Europe. The crisis is taking place against a background of demographic change. The center analyses the causes of high government debt and its impact, and proposes possible ways out of the crisis. Budget trends are investigated on both a federal, municipal and local level over the short-term and the long-term. The short-term analysis complements business cycle research, while the long-term analysis complements the question of inter-generational distribution and the relation between growth and social cohesion, which is also analysed by the Ifo Center for Labour Market Research and Family Economics. These questions are investigated on both a national and an EU level.

Political economy

Political issues are analysed from both a public finance and a political economy point of view in a balanced manner. The center continues to conduct ongoing research projects on topics such as, for example, the effect of a chosen subject of study on its student’s political views; and the political manipulation of financial equalisation payments and funds from economic stimulus packages during the 2008/2009 financial crisis; and the determinants of voter participation.

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