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Gerrit B. Koester, Development of the revenue structure in:

Gerrit B. Koester

The political economy of tax reforms, page 22 - 24

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
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). 23 discuss the development of the German tax system from an international perspective and finally review important trends. 3.1 Development of the revenue structure Figure 3 reflects the development of the revenue structure of the German tax system after the foundation of the Federal Republic of Germany (in the following referred to as Germany) in 1949.14 0% 5% 10% 15% 20% 25% 19 50 19 53 19 56 19 59 19 62 19 65 19 68 19 71 19 74 19 77 19 80 19 83 19 86 19 89 19 92 19 95 19 98 20 01 20 04 20 07 Wage and income tax Sales tax/VAT Corporate profit and local trade taxes Others Mineral oil taxes Property taxes Tobacco taxes Data source: Federal Statistical Office (2007). Tax revenues/ GDP TOTAL TAX STRUCTURE DEVELOPMENT 1950-2006 Figure 3: Tax structure development 1950-2006 The revenue structure of the German tax system has been relatively stable since 1950. The tax revenue over GDP ratio increased from 19.3% in 1950 to 24.6% in 1969 and has been fluctuating around 23% of GDP since then. If we analyze the development of revenues in more detail by kind of tax, we find the most important change in the progressive wage and income tax. Revenues of the wage and income 14 We restrict us to a description of the revenue structure development here. Normative approaches to the explanation of tax structure developments can be found e.g. in Atkinson/Stiglitz (1976) or Boadway et al. (1994) and a positive approach in Alt (1983). 24 tax grew strongly in importance and increased from 4.4% of GDP in 1950 to more than 10.6% of GDP in 1977 and have been fluctuating around this level since then. Revenues of the sales tax, which was transformed into a value-added tax in 1968, showed an upward trend from 1950 to 2006 and increased from 4.9% of GDP in 1950 to 6.4% of GDP in 2006. Business taxes in form of the corporate profit and the local trade tax showed a slight downward trend since the beginning of the 1970s, while the importance of mineral oil taxes in the tax mix constantly increased. Mineral oil tax revenues grew from 0.4% of GDP in 1951 to 1.7% of GDP in 2006.15 3.2 Development of the German tax system in international perspective How has the German tax system developed in comparison to other industrialized countries? We start by reviewing the overall development of the tax and social security revenues16 in Germany compared to those OECD countries for which historical data are available.17 Then we move on to separate analyses of the development of income taxes, consumption taxes, and property taxes.18 Our analysis starts with the year 1965 (when comparable data became available for most OECD countries) and reviews the development until 2003.19 Public revenues in Germany (if measured by tax and social security revenues over GDP) were with 35.5% close to the average of all OECD countries (36.3%) in 2003 (see Figure 4). However, the development of the size of government in Germany has differed strongly from the other OECD members since then. From 1965 till 2003 the size of government in Germany (if measured by the ratio of social security contributions and tax revenues over GDP) grew only by 3.9 percentage points – the second lowest value after the US and substantially smaller than average growth within the OECD countries of 10.5 percentage points. The data indicate that the size of government was (compared to other OECD members) large in the mid-1960s but has grown only very slowly since then. 15 See for a more detailed discussion of revenue developments by kind of tax part IV.2. 16 For a discussion of the relationship of taxes and social security contributions in Germany see part II.4. 17 Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States of America. See OECD (2006). 18 For a more detailed discussion of international developments of tax systems see Bach (2001), OECD (2004) and European Commission (2004). For general trends in tax reforms see OECD (2004) and for an analysis of the evolution of tax structures Alt (1983). A discussion especially of the international development of personal income taxes can be found in OECD (1986/2006a). 19 Most of the following analyses of our data-set on tax reforms refer to the same time period (see part III).

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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.