Reform of local taxation in Germany

Abstract

This chapter discusses the local government finance from a West German perspective, considering in turn the criteria for good local taxes; the achievements and deficiencies of the 1969 local tax reforms; and some proposals for reforms to local business taxes. The starting point for another local tax reform, if it should occur, would certainly be the erosion of the business tax, which in the medium term makes it necessary to act. The functions to be fulfilled at the local level are clearly defined in the German constitution, because the states were given the responsibility of delegating powers to their local governments. The criteria are grouped into three categories, the first being related to a national perspective while the second and third are related to the special features of local government. The situation before 1969 was deemed untenable. Private households were fiscally connected with their communities only through the rather small property tax and the few excise taxes.