Volume 8, Issue 2

This article deals with the impact of fiscal decentralisation on the spatial distribution of economic activities in EU regions as well as with the effectiveness of the European Union’s regional policy aiming at economic and social cohesion among its Member States. After a short discussion on concepts and measurement issues of fiscal decentralization two empirical analyses show that the level of sub-national autonomy, considering primarily decisions on local and regional tax income, tends to reduce the degree of regional production specialization in 200 NUTS2 regions while it enhances the effectiveness of the structural funds in 13 EU Member States. C

This article analyses the impact of EU structural policy on the economic development of German regions between 1995 and 2004. In this period East- German regions have converged, while regional disparities have been increasing in West-Germany. In addition East-German Landkreise have caught up with poor western regions. However the overall gap between rich and poor Landkreise has risen. Economic theory describes a trade-off between regional convergence and aggregate growth. Our empirical findings support this hypothesis. It is shown that the EU’s regional transfers speed up convergence, but have a negative impact on longrun aggregate growth.

We examine the impact of demographic change on the level and the structure of federal, state and local government expenditures in Germany up to the year 2020 by using estimates of the age structure sensitivity of spending in almost 30 functions. Special attention is given to differences between East and West Germany. Whereas East German state and local governments can expect significant savings from shrinking population size and from shifts in the age structure, subnational government budgets in the West are only slightly affected. Federal government spending will increase due to the rise in spending on the elderly. The results suggest that significant adjustments of public budgets at the expenditure side are necessary in order to cope with the fiscal challenges of demographic change.

Using a panel of west German states (Länder) for the period 1985 to 2002 we analyse potential effects of demographic change and political constellations on higher education spending, as suggested by recent literature on the political economy of the determination of public expenditures. We find empirical evidence for the hypothesis of a negative relationship between demographic aging and higher spending on public education. In contrast to the hypothesis of the classical partisan theory that implies higher public expenditures under leftist parties, we find that governments under conservative parties or a coalition between social democrats and conservatives spend more on public higher education than governments run by the social-democratic party alone.

Several Länder in Germany have introduced, or are about to introduce, tuition fees for higher education. We discuss three hypotheses pertaining to (i) their distributional effects, (ii) their effect on the demand for higher education and study behaviour, and (iii) the competition and financial resources effects.We utilize a large number of empirical studies and other country experiences to assess likely effects in Germany.We conclude that fees are likely to reduce enrolment modestly and that the existing system of higher education financing is probably regressive. Tuition fees will reduce regressiveness only if they replace tax-financed funding, which conflicts with the objective of increasing resources for universities, however. We are sceptical about the latter happening.