Abstract
The German Länder are increasingly coming under criticism for insufficiently fulfilling their federal duty to enforce tax. A reason suggested for this is the lack of financial incentives: the Länder have to bear the staffing costs, but as a result of fiscal equalisation among Germany’s federal states, they are only allowed to keep a fraction of the additional income collected. The author shows that this is a myth: additional tax inspectors would still bring in good returns for the Länder. Moreover, it is the financially stronger states that are allowed to keep a larger share of their tax income, but which carry out fewer inspections. Thus, higher financial incentives are linked with poorer tax enforcement.
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