The Saar Ministry of Interior and Sport commissioned the Ifo Institute for Economic Research to conduct a study aimed at examining the current municipal fiscal equalisation system in the state. The investigation on the so-called horizontal financial resource allocation system among the Saar municipalities is of primary interest, whereas the vertical aspects of fiscal equalisation between the state and municipalities are also additionally dealt with in depth. To be sure, research and elaboration of relevant public finance issues are thoroughly carried out in the scientific framework backed by theoretical and empirical foundations. Nevertheless, when carrying out analyses, serious attempts are additionally made to adequately take into account those pragmatic aspects which include, for example, the political acceptance and applicability of the study results and the Saar-specific problems related to the implementation of its policy recommendation as well as the statistical shortcomings with regard to a reflection of the real situation.
For the horizontal equalisation in Saarland the existing allocation system of total state transfers among municipalities is primarily examined. The data elaboration and multiple regression analyses comprise the examination of the current "major system of weighting the number of inhabitants" as well as various "additional weighting systems" (such as for children, streets, mining municipalities, spa facilities, central places and social welfare expenditure burden), which are applied to determine the overall municipal expenditure needs. For the vertical equalisation a long-term development of municipal revenues and expenditures is shown on the basis of the official fiscal budget statistics, and their major characteristics are identified, which are then compared to that for the state in a systematic way. In particular the shifts and movements of local activities among those delegated types, the responsible as well as the voluntary ones, are of special research interest, which have played a significant role for the recent local fiscal bottlenecks in Saarland. Furthermore, the Saar-specific fiscal equalisation situation is highlighted in a comparison of the revenue and expenditure development in other west German Länder.
Apart from the relevant theoretical and empirical references as well as legal documents concerning the Saar fiscal equalisation system, regional and municipal statistics and data are applied for the empirical analyses mentioned above. Some data are estimated by the Ifo Institute. These data and statistics include:
For the horizontal equalisation in Saarland the central-place weighting system should be expanded, which must be accompanied by the abolition of the major weighting system (i.e. all inhabitants should be weighted at the same rate regardless of the size of municipalities). At the same time, the introduction of the so-called employment weighting system is strongly recommended to adequately consider the additional financial burden of the large municipalities and their positive spill-overs for surroundings. A direct integration of a weighting system for the social welfare expenditure burden into the measurement of local expenditures is also desirable. Moreover, the additional weighting system for children should gain in importance.
Regarding the vertical equalisation in Saarland, the shifts and movements of local activities from the state to local governments among those delegated types, the responsible as well as the voluntary ones, have also played a significant role in the recent local fiscal bottlenecks in municipalities of Saarland. Such a fiscal stress has recently been triggered by the rapid increases in local debts and the related interest burden as well as the explosion of social payments in previous years. Since the state and municipalities have been suffering from the fiscal stress at the same time, a re-arrangement of local activities appears to be necessary to rectify this unfavourable budget situation in Saarland.
Chang Woon Nam, Rüdiger Parsche, "Internationaler Vergleich der Systeme zur Besteuerung der Land- und Forstwirtschaft", im Auftrag des Bundesministeriums der Finanzen, ifo Forschungsberichte, Munich, August 2001.
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