The Public Finance Department conducts research and policy advisory work in the fields of:
In the context of the department’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. The fundamental questions cover the role of horizontal and vertical interactions in the area of taxation and fiscal competition, as well as the public service offering and the department 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. There is a special focus on the incentive effects and controlling problems created by the strategic behaviour of local authorities. Incentive effects and governance problems are also discussed in relation to budget compensation and public debt. Areas of application are local finances in Germany and the United States. In addition, the department conducts research on the fiscal policy of German local authorities, Länder and EU member states. In the context of local public finances and site competition for mobile production factors, the analysis of the real-estate market is also important, since the prices of fixed factors reflect the quality of public infrastructures and the amount of local taxes paid.
The second research focus is the regular evaluation of fiscal policy. This strand of the department’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 department 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 use information from the Business Cycle Analyses and Surveys and are also used by the latter in its forecasting activities.
Following on from the work carried out to date by Ifo’s president, one of the department’s new main research areas will be the government debt crisis Germany and Europe. The crisis is taking place against a background of demographic change. The department 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 Social Policy and Labour Markets Department. These questions are investigated on both a national and an EU level.
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