The Reform of Local Business Taxes in Germany

In this paper the criticisms of the local business tax in Germany and the main reform proposals are outlined. Each of the main proposals is then evaluated in detail. It is concluded that the proposal for a local value-added tax would be detrimental to economic growth, would distort international competition, would be very complicated, and has political impracticalities. The use of a share of the national turnover tax is a preferable solution for part of local revenue and could be allocated to the Land Kreise; a second component could be provided by increasing the local share of the federal income tax. The revitalisation of the present business tax is rejected.