Abstract
Abstract In Germany, the current situation of local government finance is still worrying. Up to now, all political attempts to reform the German local tax system fundamentally led to no satisfying result. For this reason, new reform initiatives gain particular attention in scientific and political discussion. Against this background, the paper examines the proposal for reform of the existing local tax system presented by Stiftung Marktwirtschaft. By highlighting public finance characteristics of economically reasonable local government finances as well as public choice characteristics of a politically successful reform, it will be shown that within some small but important modifications the proposal of Stiftung Marktwirtschaft is in a position to solve local government finance problems in a durable manner. This result is consecuted by an empirical simulation of the fiscal effects for all German local authorities. The fiscal simulation demonstrates that more then ninety percent of German cities and municipalities will gain from a political implementation of the proposal for reform.
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