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Demographic Change and Local Government Finance - Trends and Expectations

Heinrich Mäding

Demographic Change and Local Government Finance - Trends and Expectations

1. Introduction
    1.1 Relevance and Difficulty of the Topic
    1.2 Demographic Trends
    1.3 Framework concept
2. Demographic Trends and the Overall Municipal Budget
    2.1 Revenues
    2.2 Expenditures
    2.3 Interim Conclusion
3. Demographic Trends and Individual Municipal Budgets
4. Local Government Reaction Strategies
5. Conclusion


The thesis of a demographically determined, generalised local government financial crisis is misleading if it takes account only of revenues. Because growth in productivity is to be expected, per capita public and municipal revenues are likely to increase. Even demographically determined income disparities between local authorities could be levelled out by financial equalization. Only when expenditures are taken into account does this thesis have a valid basis. The danger on the expenditure side has four components:

1.) persistence of expenditures in the event of a dwindling population; 2.) rising per capita expenditures owing to the effects of demographic structural change (ageing, heterogenization, individualisation); 3.) supplementary spending owing to the effects of internal migration (East-West, suburbanisation); 4.) additional spending in pursuit of an "excessive" attractiveness policy in "cut-throat" competition for residents.


1. Introduction


1.1 Relevance and Difficulty of the Topic

Public finance is extremely important for political actors: it affects all fields of politico-administrative action (financial policy as a cross-sectional policy) and, being prerequisite for action, money is a constraint (financial policy as resource policy). Political actors are accordingly locked in an irresolvable contest for more money. It is fought out vertically between the federal government, state governments, and local governments, horizontally between states, and sectorally between policy areas.

Most important in assessing the financial situation are what financial resources are "freely disposable." Freely disposable money permits ongoing political programmes to be better funded, new programmes to be launched with which an actor can enhance his position in complex competitive relationships (between parties, between territorial authorities, between policy areas) in the interest of attaining actor goals (e.g., re-election, power, career). "Freely disposable" in this sense are only revenues that are not earmarked for statutory and contractual obligations. What matters for local authorities with their limited spending autonomy is not so much the absolute amount of their revenues but the usually very small share that is not "eaten up" by mandatory commitments.

Demographic change therefore influences a municipality's financial situation through municipal revenues/potential revenues and through municipal expenditures/mandatory expenditures.

Such influence is often indirect in nature, objectively very complex and uncertain, and methodologically very difficult to get at. Hence the academic controversy not only about demographic trends but also about their impact.

The influence is never mechanistically-imperative in detail, being always amenable within limits to political intervention. There is scope for action. The result is political controversy about whether and how demographic trends can and ought to be influenced (not least of all because of their financial consequences), how financial policy and departmental scope for formative action are to be used in dealing with given trends.

In the public and political debate, this complex is imbued with myths and fears that do not hold up to careful scientific scrutiny, for instance when population decline is superficially equated with financial crisis.(1) This article hopes to encourage a more differentiated view of the issue. It presents no forecasts or model calculations but offers a number of (qualitative) expectations mostly on a plausibility basis.


1.2 Demographic Trends

This study posits eight demographic trends in Germany - differentiated in terms of population volumes, structure, and migratory movements. Seven will persist into the future, one will reverse:

A) National population volumes

  • First trend: "shrinkage."The reproductive behaviour of the (German and foreign) population in Germany (one indicator: combined birth rate per woman of about 1.3) has been insufficient to reproduce the population for over 30 years. The number of deaths exceeds the number of births. No change is in sight.
  • Second trend: "immigration."The long-term average for Germany shows positive net migration, i.e., there are more arrivals than departures. Between 1960 and 2000 average annual net migration was about + 250,000. With exceptions due mostly to economic developments, arrivals (of Germans and foreigners) generally exceed departures (of Germans and foreigners). The high balances of the 1990s will probably not persist, in spite of EU enlargement. In the "10th Coordinated Population Projection" (2003) the Federal Statistical Office anticipates three scenarios for 2050: +100 000, +200 000, +300 000.(2) 
  • Third trend: "increase of total population" (as the result of the first and second trends).Up to the present, the positive migration balance has exceeded and masked population decline. The total population is currently growing by about 100,000 per year. This will not continue: probably between 2010 and 2020 the population of Germany will begin to fall. According to the middle variant 5 of the "10th Coordinated Population Projection" of the Federal Statistical Office (2003), this will be the case from 2012 onwards. Therefore this third trend will reverse.

B) National population structure

  • Fourth trend: "ageing."Longer life expectancies and insufficient reproduction will mean that the population as a whole grows older. This trend is reflected by a shift in various rates or averages, e.g., the 1998 median age (3) of 38 years will rise to over 50 in 2050 (Birg 2001: 116).
  • Fifth trend: "heterogenization."Owing to the net gain in international migration and the composition of immigration and emigration, society is becoming increasingly differentiated with regard to regional and ethnic origin, as well as cultural and religious background.
  • Sixth trend: "Individualisation."The average number of people per household is steadily sinking; the proportion of one-person households is rising, especially in cities.

C) Extensive and concentrated intranational migration

  • Seventh trend: "East-West migration."After net migration losses in East Germany had initially fallen after unification, they began to rise again from 1997, owing to inadequate economic development in the East. Apart from immigration, this is the trend that is most unpredictable. The authorities anticipate a gradual decline in the balance, and not only from calculated optimism.(4) 
  • Eighth trend: "suburbanisation."In the narrower context, suburbanisation remains the most important trend in spatial population distribution, even if it is likely to diminish somewhat (Mäding 2004).

These eight trends can be further differentiated, e.g., life expectancy could be treated separately. They differ from region to region and locality to locality; growing communities lie side-by-side with shrinking communities; the proportion of foreigners as a - weak - indicator of heterogenization is much higher in the West than in the East. The trends also interact in a complicated manner, for instance, shrinkage contributes to ageing, suburbanisation explains part of population decline in core cities, etc., etc.


1.3 Framework concept

An exhaustive treatment of the subject would require full investigation of the past, present, and future consequences of the eight trends for the various categories of municipal revenues and expenditures. The cells of a matrix would, as it were, have to be worked through in which the leading column listed the trends and the head row the more or less disaggregated revenue and expenditure types. Since, as I have stressed, trends differ regionally and locally, as do revenue and expenditure structures, a third dimension at least would be needed, converting the matrix into a cube to take account of the regional typification of municipalities. And if regional typifications of trends and financial structures do not coincide, as can be expected, a fourth dimension would be needed. Such a systematic analysis concept is clearly far beyond the scope of an article in a journal. Many data and methodological constraints also make it an illusory endeavour.(5) 

Instead, this article discusses a certain number of issues from a qualitative perspective. The focus will be on demographic decline (national, local), its financial impact on the local level (section 2), and on individual municipalities (section 3). In addition, local government reaction strategies for dealing with demographic change and its fiscal consequences will be examined (section 4).


2. Demographic Trends and the Overall Municipal Budget


2.1 Revenues

The (mistaken) negative expectations about the serious consequences of a national fall in population are based not least of all on a (mistaken) analogical inference from (authentic) experience in core cities, namely, that, when the population shifts to the suburbs, the system of a municipal share of income tax and financial equalization at the local government level weakens local revenue capacity and (because of expenditure lag) generally prejudices the local financial position (Mäding 2001).

This inference is mistaken above all because revenue losses in single municipalities due to demographic decline (e.g., through suburbanisation as well as shrinkage) are calculated on the basis of the following question: "How would our revenue situation have been affected if greater account had been taken of the (average) resident in the distribution of income tax and grant fund allocations for local government financial equalization?" This approach typically produces losses due to population decline amounting to several hundred or even over a thousand euro per capita.(6) Their multiplication by population decline up to 2015 (cf. Zierold 2003; Dransfeld/Osterhagen s.a.: 38 is, however, methodologically inadmissible. The revenue losses are calculated on the basis of a given point in time and volume of (state) income tax revenue and the pool of grant funds. But the simultaneous population losses of the other municipalities in the state and (in the case of migration) population gains of the target community are often ignored.(7) This can be no yardstick for long-term assessment at the national level, especially since account has to be taken of the long-term development of productivity.

From a macro-economic point of view (cf. figure), the development of national revenues depends on the development of the economy and on fiscal access to economic elements like income, turnover, value of real property, etc., as the basis for taxation. In a first approximation, this access can be operationalized with the tax load ratio (or the taxes and social security ratio). If we assume that the tax load ratio remains constant, public revenues will develop in line with gross national product (GNP) (or gross domestic product).(8) 

GNP can be seen as the product of labour input and productivity. In this context productivity depends on capital input, entrepreneurial performance, realised technical and organisational knowledge, education levels, employee job motivation, etc., all factors that can, within limits, be politically influenced.

If productivity remains constant and this is also the case for the labour force participation rate and the occupation rate, GNP will rise and fall as does the population. Per capita GNP and public per capita revenues will then remain constant. The two key sources of private standards of living will hence not be negatively affected if the population declines.


This is, however, far too pessimistic an approach because there is no reason to believe that future productivity growth will be falling to zero. Just how it will develop can be the subject of a great deal of investigation and speculation. Experts agree that it will be lower than in the West Germany of the exceptional 1950s to 1970s (cf. Miegel 2002) but it will continue to be markedly positive.(9) I agree with the Rürup Commission (Kommission "Nachhaltigkeit …" 2003): they anticipate about 1.8 per cent long-term growth in real per capita GNP per year.(10) This already takes into account that the productivity growth numbers of an industrial society cannot without further ado be equated with productivity growth prospects for a service society.

Where framework conditions remain constant ("ceteris paribus"), absolute GNP development therefore depends on the relative speed of population decline and on productivity growth. If we accept the lower, i.e., "worst" scenarios in the 9th and 10th Coordinated Population Projections, the population of Germany will fall from 82 million to 65 or 67 million by 2050, hence by a maximum of 17 or 15 million or about 20 per cent in total, an annual 0.4 per cent. GNP would still grow by 1.4 per cent a year in absolute terms if per capita GNP and per capita income rise by 1.8 per cent a year. The German Institute for Economic Research (DIW), which predicts a 1.75 per cent rise in productivity, thus calculates real growth in tax revenues of between 82.6 per cent and 96.0 per cent in 2050 over 2005 (depending on demographic assumptions), almost doubling the figure.(11) 

This is the basic optimistic message. Whoever calls this in doubt must prove his case in detail. Possible approaches involve the influence of population structure on the variables that interrelate population and GNP, i.e., productivity, occupation rate, and labour force participation rate.

  1. How ageing affects productivity:It could be posited that an ageing workforce - the median age of the total population will rise by about ten years by 2050, that of the economically active population by much less - implies falling productivity, owing, for example, to the growing average period after completion of formal education (bringing further education into play as a counter-strategy) or because of higher sickness ratios (in this case the counter-strategy would be preventive health care). With the transition to a service and knowledge society, the superior "force" and physical constitution of the younger working population becomes less relevant, and the greater experience and social competence of the older economically active population comes more to bear. Empirical investigation has provided mixed findings on the subject.(12) Moreover, it has to be taken into account that the ageing process also played a role in past productivity development.(13) 
  2. How heterogenization affects productivity:Even relatively low immigration makes both the economically active population and the total population more heterogeneous. The current under-average skills level of immigrants and their offspring (approximate indicator: formal educational qualifications) would lower macroeconomic productivity.(14) This consideration cannot be ignored. But the effects depends on the concrete orientation of immigration policy (in favour of skilled labour), general integration policy, and specific aspects of educational policy. For economic and social policy reasons, immigrants and their children have to be as well qualified as possible for the production process. This is a key task for the future. The better this can be achieved through the combined efforts of many actors (educational system, industry, immigrants) the less justified will be the fears I have described.
  3. How ageing affects labour force participation.

Owing to the shift in age structure, the age dependency ratios of the young and the old - however measured - will in future fall and rise respectively. This will probably reduce the proportion of people of employable age in the total population. If age-specific labour force participation by this group remains constant, the labour force participation rate as the ratio of economically active persons to total population would fall. One of the 2050 projections predicts that if the population falls by 10 per cent by that date, the number of economically active persons will decrease by about 25 per cent (cf. DIW 2002: 21, 29). A political attempt could be made to influence employment rates (especially among women and older people), retirement age, and/or the level of the employable population in work.

This article does not quantitatively assess the relative weight of such influence. For present purposes it is sufficient to posit, in my view too pessimistically, a constant GNP for the period up to 2050 with a rise in per capita GNP in proportion to population decline.

Since demographic factors do not directly affect the taxation ratio (but cf. DIW 2002), constant public revenues and growing per capita public revenues would result. However, it should not be overlooked that tax competition, which is certain to persist under the impact of globalisation and EU enlargement,(15) will help lower the tax load ratio. For this reason and not so much on demographic grounds, growth in per capita public revenues is likely to be limited.

Following this line of argument, participation by the various tiers of government in current proportions is conceivable, so that federal government, state governments, and local authorities could independently achieve growing public revenues per capita. Whether this is likely or not is another matter - it is a question of political action and of possible laws of politics but not of socio-economic cause-and-effect complexes. German experience in the second half of the 20th century suggests this is not the case. The share of municipal revenues (after financial equalization) in public revenues tended to fall slightly. And current experience with local government financial reform (Kommission 2002/2003) and its implementation to date suggest that, owing to the structural weakness of the local level in the national decision-making system (Mäding 1990), the development of local per capita revenues is likely to be disproportionately weak (cf. Steuerreform-Entscheidungen … 2002).


2.2 Expenditures

Unfortunately, the message that local government revenues per capita are economically likely to grow is not an all-clear signal. For account has to be taken of the expenditure side at the local level. In its national study, the German Institute for Economic Research notes that: "Despite overall population decline, government expenditure will increase in almost all population scenarios" (DIW 2002: XVIII).(16) Although a fall in the number of residents owing to demographic decline also implies lower expenditure demand in many policy areas, there are other dangers, even though there has so far been "relatively little agreement among economists about the influence of demographic variables on individual government [and local] policy areas" (Baum/Seitz/Worobjew 2002: 153).

  1. An ageing society will need increasing per capita spending on health and care.(17) In the light of medical and technological progress, of the growing number and ratio of the "old elderly" (80/85 and older) (18) and their morbidity,(19) and in view of the fact that local authorities will continue to bear part of this spending owing to holdings in hospitals and old-age facilities and responsibility for welfare benefits, a proportion of the increase in per capita revenues will be cancelled out by greater per capita health spending. Everyone is meanwhile aware that improving individual and collective prevention helps combat this erosion, but: "Improved prevention is … no panacea; the record - at least with regard to the cost effect - is sobering."(20) 
  2. A shrinking society will need growing per capita expenditure to maintain and operate its infrastructure (but diminishing per-capita spending on new investment). Operating costs for the technical infrastructure often increase if it is not used to full capacity. In water supply, for example, bacterial aftergrowth threatens if flow is too low, and sewers can clog (cf. Koziol in this issue). Thus not only do fixed costs have to be apportioned among fewer people but real additional operational expenses have to be financed. If customers react to higher charges by consuming less, the problem worsens.In the long term (beyond 2050) additional investment in the social infrastructure will presumably be required in certain old-age-related sectors (old age-related infrastructure). But even with a fall in the number of users in youth-related sectors (e.g., educational facilities), spending will not diminish in step but will tend to grow per user (expenditure lag).(21) Especially in the country, policy adjustments (such the introduction of mixed-age classes) can lower quality, and massive school closures can provoke additional expenditure for subsidised school transport. If households consequently move or return from outlying areas to the city, the problems are exacerbated, not least of all in the country.
  3. A more heterogeneous society will require higher per capita spending on integration and education,(22) and perhaps higher social transfer payments. This is suggested by current findings: foreigners have less educational success, higher unemployment rates, higher social assistance rates (cf. Strohmeier/Bader in this issue). The leverage for changing this will be provided in general by better, i.e., more intensive and therefore more expensive education involving greater spending by state and local government. Parents, especially immigrant mothers, should be included in programmes. The Immigration Act adopted in 2004 places great value on integration measures at the local level.
  4. A society in which an increasing number of people live in one-person households will require growing per capita spending for many services. According to some estimates, some 80 per cent of care services are today still performed in the family (this means largely by wives and daughters). With fewer children and growing work-related mobility, such services will in future have to be more strongly societalized - even if this is done through (partial) municipal social assistance financing of services delivered on a private and market basis.
  5. A society with high migration intensity will on balance spend more per head of population. It is "economically profligate" (Conrad 1980). This has been plausibly demonstrated in the case of suburbanisation (Mäding 2001).

If we assume that the dividing live between the public and private financing of these demographic spending burdens remains constant, they will also weigh heavily on municipal budgets.


2.3 Interim Conclusion

The thesis that Germany faces a municipal financial crisis because revenues are falling as the population dwindles is misleading because, even if the counterarguments are taken into account, growing public and municipal revenues per head of population can be expected. This is because productivity and gross national product per capita can be expected to grow. The most important political control factors (in the globalisation and EU enlargement context ) are the tax load ratio and the municipal share in public per capita revenues.

The thesis of threatening municipal financial straits gains credence, however, if the expenditure side is taken into account. This is particularly true if not only the effects of a fall in population on per capita spending (expenditure lag) are considered but also the other demographic structural effects (ageing, heterogenization, individualisation) and the consequences of migration (suburbanisation).

Whether the relief provided by productivity development or the burden of these other demographic factors predominate cannot be determined by qualitative argument. This is a task for empirical studies. But the most thorough of analyses and forecasts remain speculative; for largely unpredictable decisions about political control parameters have a role to play. Finally, it must be acknowledged that the demography-related municipal financial crisis due to growing per capita expenditure may prove much less serious than that provoked by recent regulations (on water quality, environmental noise, barrier-free building, etc.).


3. Demographic Trends and Individual Municipal Budgets

What is true for aggregate data on national developments need not hold for the individual municipal budget or for the development of expenditure and revenues in regions however defined (e.g., East Germany in contrast to West Germany; the Ruhr District in comparison with North Rhine-Westphalia as a whole; core cities as opposed to their suburbs or peripheral rural areas, etc.).

Whereas in section 2.1 a cautious all-clear was sounded, it should be pointed out that this signal (rising municipal revenues per capita despite dwindling population) does not and cannot apply for every single municipality.

The development of revenues in a single municipality - ignoring the federal and state levels and federal-state financial equalization issues (23) - depends on how the municipality's own taxable capacity develops and what the municipal revenue equalization scheme offers. In my view, local differences in demographic processes constitute the real danger for the finances of single local authorities.

Demography-related financial deviation from (national) averages arises wherever the regional or local population:

  • shrinks at an above-average rate owing to natural population development;
  • deviates negatively from the state average owing to international migration flows;
  • is negatively affected by East-West migration or suburbanisation or both.

The same applies where productivity or revenue development or the labour force participation rate in a region or municipality is lower than average, or the unemployment rate higher than average. Finally, central places / major cities will have to accept above-average losses through population decline if financial equalization legislation provides for the "enhancement" of population numbers through the main appropriation scale (24) (cf. Winkel 2003: 84; Miera 1994: 246). In all these cases, local revenues from the share in income tax and financial equalization will remain below average. The influence of demographic processes on local trade tax is much more indirect (Mäding 2001) and quantitatively unimportant (DIW 2002: XX) and is therefore ignored for our purposes, because it is largely compensated by financial equalization.

As we have seen, it can be assumed that municipal revenues per capita will continue to rise. Nonetheless, local revenues per head of population may rise more slowly, stagnate, or even fall. Because this argument is based on averages, the inference is that per capita revenues in other municipalities must be above average, and must thus be rising faster. The population cannot shrink everywhere at an above-average rate nor leave everywhere without arriving somewhere.

It is the aim of financial equalization to balance such disparate developments, which can endanger important government objectives such as the uniformity of living standards, firstly at the national/state level and secondly in state financial equalization at the local government level. The difficulties should not be underestimated. One need only remember the political trench warfare and the negative incentive effects provoked by an extensive financial equalization system. However it should be made absolutely clear that if public per capita revenues are growing, a flexible demand-oriented financial equalization policy could ensure that public per capita income grows in every single territorial administrative unit and not only on each of the three tiers of government.

The rule of thumb is as follows. In the case of constant regional differences in economic capacity and a regionally uniform fall in population, transfer intensity also remains constant. It grows if regional differences in economic capacity increase and/or the population falls at different rates from region to region (e.g., owing to increasing regional differences in economic capacity) - which is likely to be the case. Hence, any internal migration worth mentioning (East-West, suburbanisation) will raise transfer intensity and can increase political pressure to lower it. The rational, personal economic behaviour of workers who migrate to job opportunities (somewhat) eases transfer demand. The major West-East transfers of the past decade would in any case have been larger if East-West migration had not occurred. However, the selectivity of transfers contributes to perpetuating the productivity gap in favour of the West and thus to sustaining transfer practices.


4. Local Government Reaction Strategies

What reaction strategies can local government adopt towards demographic change and its fiscal consequences?

  1. Not even the State with its much greater possibilities can effectively influence natural population decline. At the local level, the individual municipality should nevertheless abide firmly by the goal of a "child (and family) friendly community" (Deutsches Institut für Urbanistik/Agrarsoziale Gesellschaft e.V. [1997]; Rürup/Gruescu [2003]).
  2. The model of a "foreigner-friendly community" has a similar role to play. If intolerance and a failure to encourage integration damage a place's image and hamper international immigration, economic opportunities are wasted in the long term.
  3. As far as intranational migration is concerned, direct local government influence tends to be seen in intra-regional, residence-oriented migration rather than in inter-regional, economically oriented migration. Every municipality (more or less) pursues a local economic (development) policy in the hope of enhancing its attractiveness for industry and indirectly as a location offering good job opportunities. Every municipality also (more or less) pursues a local quality-of-life (promotion) policy to increase resident satisfaction, minimise outmigration, and enhance its attractiveness for potential inmigrants.

Even today, when the population of Germany is still growing overall, municipalities engage in fierce competition for residents for obvious financial reasons. As the population as a whole dwindles, this competition will increase. What could be more understandable than wanting to win the this competition by spending more? For instance:

  • on developing and designating more land for residential use;(25) 
  • by supporting home ownership;(26) 
  • by revitalizing neighbourhoods,
  • by providing attractive infrastructures (27) and green spaces,
  • by staging major events in the sports business or culture.

Felgenhauer (2002:122) sums up his careful work on the "Municipal Fiscal Effects of Residential Land Programmes in Shrinking Cities - the Example of Dortmund" as follows: "Assessment of the long-term consequences of building land programmes on the municipal share of personal income tax and the quota allocation of funds in the context of the municipal revenue equalization system is an even more speculative undertaking than judging the future effects of land development" on population numbers, H.M.). Above all, he points out that residential land development programmes entail specific expenditures, "since, owing to municipal land purchases at prices for projected building land, high preliminaries as well as interest payments for financing the separate property are incurred." (130).

In my opinion this presents a particular danger indirectly connected with demographic decline: that municipalities are tempted to win the competition for residents through "cut-throat competition" on the expenditure side. But for a given total population, each individual can win only at the cost of others.


5. Conclusion

The thesis of a demographically determined, generalised local government financial crisis is misleading if it takes account only of revenues. Because growth in productivity is to be expected, per capita public and municipal revenues are likely to increase. Even demographically determined income disparities between local authorities could be levelled out by financial equalization. Only when expenditures are taken into account does this thesis become plausible. The danger on the expenditure side has four components:

  • n persistence of expenditures in the event of a dwindling population,
  • rising per capita spending owing to the effects of demographic structural changes (ageing, heterogenization, individualisation);
  • supplementary spending owing to the effects of internal migration (East-West, suburbanisation);
  • additional spending in pursuit of an "excessive" attractiveness policy in "cut-throat" competition for residents.

It is therefore vital for municipal decision-makers to adopt an integrated local policy, i.e., to set realistic spending priorities and not to lose sight of the demographically determined fiscal "dangers." The recent history of the Federal Republic of Germany provides ample evidence of additional policy-related risks for the financial base of local self-government, that the even or "fair" distribution of total revenues among the different tiers of government is not a matter of course.



(1) Cf. Winkel (1988: 549): "A fall in population figures tends to imply falling revenues in the communities affected which are not offset by falling expenditures." See also Winkel (2003: 82, 88). (back)

(2) In the "9th Coordinated Population Projection" the third variant was lacking (+300,000). (back)

(3) The median age is the chronological age which divides a population statistically into two equally sized groups. 50 per cent of the population are younger and 50 per cent older than this age. The median age is an important comparative factor showing ageing in a country. If the group of younger people steadily shrinks, the median age rises continuously. (back)

(4) Cf the Federal Office for Building and Regional Planning (BBR) in the 2020 Regional Planning Forecast; cf. BBR (2004); Schlömer (2003). (back)

(5) Some are implicitly explicated in Baum/Seitz/Worobjew (2002). (back)

(6) Dransfeld/Osterhage (s.a.) calculate € 1,100 per head of population as a "serious rule-of-thumb value" (p. 52), cf. also Zierold (2003: 45, for Essen: about € 1,100 per income earner, € 800 per non-earner); Felgenhauer (2002: 129, for Dortmund: € 1,200 per income earner, € 950 per non-earner). (back)

(7) Dransfeld/Osterhage (s.a.: 38) elevate this lack to the "principle of isolated consideration." (back)

(8) The differences between West and East Germany as regards the role of assets and investment income are pointed out by Winkel (2003: 82). (back)

(9) For this reason the views on changes up to 2015 in Loeffelholz/Rappen (2002: 26) and Dransfeld/Osterhage (s.a.: 38), in both of which tax revenue and the financial equalization funds pool are "frozen," thus ignoring productivity development, are largely useless. (back)

(10) Similarly Barth (Prognos) (2000); DIW (2002) and other scientific forecasts. (back)

(11) Cf. DIW (2002: XVI). A (slightly) higher labour force participation rate and a lower unemployment rate are posited. (back)

(12) "In corporate practice the problem of innovation weakness among older employees virtually does not exist" (Die ZEIT, 11 Dec. 2003). (back)

(13) In a thesis paper issued by ver.di we read: "In the past, our society coped with a greater increase in the number of people over 65 than is to be expected over the coming 50 years" (Die ZEIT 11 Dec. 2003). (back)

(14) The same holds for the below-average employment levels, i.e., above average unemployment rates, and the below-average labour force participation rate among immigrants (and their offspring). (back)

(15) In the accession countries, the effective tax burden - taking into account fiscal investment incentives - is not even half that in Germany (ZEWnews, Jan./Feb. 2004). (back)

(16) In this regard social security is taken into account, which has elsewhere been described as the critical point for the fiscal sustainability of public finance in Germany (DIW 2002: XX). (back)

(17) Econometric tests for Germany (1980-1998) (cf. Baum/Seitz/Woronbjew 2002) show a significant, unfortunately often contra-intuitive influence of age structure in almost all areas of state government and local authority responsibility. "the predictable ageing of the population means that, according to estimates, all per capita spending at the state government and local levels will fall, municipal expenditures more strongly." (ibid.: 157). Declining expenditure is also expected in the field of "health, sport, and recreation" (without hospitals) (ibid.: 158). See also Stiens (1991). (back)

(18) By 2050 the absolute numbers will more or less triple and the ratio quadruple. (back)

(19) "Ageing means … that … chronic illnesses become widespread. Precisely these types of illness are most expenditure-intensive" (P. Oberender, Frankfurter Allgemeine Zeitung 24 Feb. 2004). (back)

(20) Ibid. (back)

(21) To my knowledge, Baum/Seitz (2003) have presented the first empirical study on the connection between demographic change and school spending in Germany, and they confirm this connection (ibid.: 211). (back)

(22) According to Baum/Seitz (2003: 216) a growing proportion of foreign children in schools leads to growing spending per head of the school age population. (back)

(23) Because of the high horizontal equalization intensity of the German federal-state equalization system this is not a serious constraint in an argument oriented on pro capita values. (back)

(24) The main appropriation (Hauptansatz) as the most important component of the total appropriation (Gesamtansatz) serves to assess the fictive requirements in the context of calculating quota allocations (Schlüsselzuweisungen) for municipalities and counties; the indicator is the population figure. In calculating the main appropriation in most non-city states, the population figure is multiplied by an increasing factor proportionate to the size of the community (so-called main appropriation scale [Hauptansatzstaffel]). (back)

(25) Cf. Felgenhauer (2002). (back)

(26) Cf. for Essen Zierold (2003). (back)

(27) Cf. ibid. (back)



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