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Gerrit B. Koester, Historical roots of the German tax system in:

Gerrit B. Koester

The political economy of tax reforms, page 21 - 22

An empirical analysis of new German data

1. Edition 2009, ISBN print: 978-3-8329-4131-4, ISBN online: 978-3-8452-1609-6 https://doi.org/10.5771/9783845216096

Series: Neue Studien zur Politischen Ökonomie, vol. 5

Bibliographic information
21 2 Historical roots of the German tax system While important parts of the current tax system date back to the 19th century,2 the foundation of the current system was formed mainly after 1913. Three developments were especially important.3 30,4 19,4 4,1 8 16,3 16,2 11,5 13,2 22,3 10,2 20,2 19,3 23,3 0 7,6 24,1 15,8 8,1 3,5 22,4 4,1 1913 1929 1950 Custom duties Sales tax Consumption taxes Property taxes Trade and real estate taxes Corporate taxes Wage and income tax TAX REVENUES AND TAX MIX Germany 1913-1950 TAX REVENUES/GDP REVENUE SHARES in % 21,9% 19,7%20,1% 17,0% 15,1% 7,7% 0% 5% 10% 15% 20% 25% 1913 1925 1929 1932 1936 1950 Data source: Hentschel (1983), pp. 273 ff. Tax Revenues/ GDP Figure 2: Development of the tax/GDP ratio and the tax mix 1913-1950 First, the tax revenue over GDP ratio – as an indicator of the general tax burden – almost tripled from 1913 to 1932 (see the left part of Figure 2). Tax revenues accounted for 20.1% of GDP already in 1932 which is close to the average level of 23% since 1950. The second important development was the introduction of a general sales tax4 which became the most important tax in revenue terms and accounted for more than 2 For example, the Miquel reform of 1891/93 introduced a general income tax in Prussia. See Kassner (2001). 3 Although tax revenue data from before 1950 is strongly distorted by two world wars (1914 to 1918 and 1939 to 1945), we can nonetheless identify important developments. For a more detailed discussion of the development of the German tax system in this period see Hentschel (1983), pp. 273 ff. 4 Transformed into a value-added tax in 1968. 22 24% of all tax revenues in 1950 (see the right part of Figure 2).5 A special sales tax6 of 0.1% was introduced in 19167 and was expanded to a general sales tax with an initial rate of 0.5% in 1918. The tax rate was raised subsequently8 which made revenues grow strongly. Finally, the so-called Erzberg reform of 1920/21 – named after the minister of finance Matthias Erzberg – unified tax legislation in Germany and thereby formed the basis for the current German tax system. The Erzberg reform integrated the very fragmented income tax regulations of the German states9 into a federally uniform income tax law.10 Corporate profit taxes became federally regulated and capital income taxes, inheritance taxes, real estate acquisition taxes, and wealth taxes (from 1922 on) were introduced as well.11 During the reign of the Nazis (1933 to 1945) and even during the war (1939- 1945) there was surprisingly little change of the German tax system12, and Germany faced a relative moderate tax burden compared to other participants of the war.13 3 The development of the German tax system since 1950 What have been the most important developments of the German tax system? In this part we first examine the tax revenue structure and its changes since 1950, then 5 The effect of the introduction of a sales tax/VAT on the overall level of taxation is discussed in an international perspective in Peters (1991). See for the relationship in between VAT and the size of government as well Stockfisch (1985). 6 Called “Warenumsatzstempel”. 7 During the first world war (1914 - 1918). 8 1920 to 1.5%, 1923 to 2.5%, 1946 to 3%, and 1951 to 4%. 9 26 different regulations at that time. 10 Following the role model of the English income tax from 1799, general taxes on income had been introduced in the state of Hesse in 1869, in Saxony in 1874 and in Baden 1884. Prussia introduced the general income tax (with mandatory tax declaration and progressive rates) in the so called Miquel reform (1891/93), and the remaining states followed. The Miquel reform of 1891/93 (Miquel was the Prussian finance minister from 1890 until 1901) in Prussia included the introduction of a general wealth tax and reassigned trade and real estate taxes from the states to the municipalities. See Terhalle (1952) for a discussion. 11 See Moeller (1971) or Respondek (1921) for a more detailed treatment. 12 Some tax relief took place in 1933 in form of investment incentives and a reduction of the sales and the real estate tax for agricultural producers (see RGBL (1933), pp. 192, 324, 491 ff.). Another important point was the comprehensive tax reform in 1934 that included a general reduction in income taxes and a special tax relief for families, a redesign of the inheritance taxes, advantages for families within the sales tax, and tax preferences for partnerships compared to incorporated businesses in the corporate income taxation (see Muscheid (1986), pp. 18 ff.). In 1939 corporate tax rates where increased from 25% to 30%, and surcharges on income, tobacco, beer, hard liqueur, and sparkling wine taxes were introduced to finance the costs of the war. See RGBL (1939); pp. 1609 ff. 13 Not at least because the Nazi government raised large sums by expropriating the Jewish population. See for a discussion Aly (2005).

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Zusammenfassung

Was bestimmt die Steuerpolitik? Welche Ziele verfolgen die Bundesregierungen bei Steuerreformen? Haben Steuererhöhungen und Steuersenkungen einen Einfluss auf die Wahlergebnisse? Auf der Basis eines neuen Datensatzes zu den fiskalischen Effekten von Steuerreformen im Zeitraum von 1964 bis 2004 zeigt das Werk Muster der Steuerpolitik auf und testet zentrale ökonomische Hypothesen. Dabei zeigt sich, dass normative ökonomische Ansätze kaum einen Erklärungsbeitrag für die zu beobachtende Steuerpolitik leisten können.

Ausgehend von wichtigen polit-ökonomischen Theorien zeigt der Autor, dass die Mehrheitskonstellationen im Bundesrat einen wichtigen Einfluss auf die Steuerpolitik haben, allerdings genau umgekehrt wie von der Blockade-Hypothese behauptet: Steuerreformen sind gemessen an ihren Fiskaleffekten bei gegenläufigen Mehrheiten in Bundestag und Bundesrat häufiger und umfangreicher. Des Weiteren gibt es keine Hinweise darauf, dass die parteipolitische Zusammensetzung der Bundesregierung einen wichtigen Einfluss auf Steuerreformen hat. Wahltaktische Terminierungen von Steuerreformen spielen aber sehr wohl eine wichtige Rolle. Eine Auswertung des Zusammenhangs von Steuerreformen und Wahlergebnissen zeigt allerdings, dass die Versuche der Bundesregierungen, ihre Wiederwahlwahrscheinlichkeit durch Steuersenkungen kurz vor der Wahl zu erhöhen, wenig erfolgreich sind: Nicht nur die Jahre unmittelbar vor den Wahlterminen, sondern die Steuerpolitik in der gesamten Legislaturperiode hat einen Einfluss auf die Bundestagswahlergebnisse der regierenden Parteien.