Comprehensive tax autonomy of Austria's Bundesländer

Federalism in Austria is heavily centralised, especially regarding the allocation of tax competences between the federal level, the Länder and the municipal level. Over 90 percent of total rax revenues are levied in the form of "joint taxes" which are then distributed between governmental levels according to allocation formulas fixed in the Finanzausgleichsgesetz (fiscal equalisation law). This revenue sharing system strongly violates the principle of fiscal equivalence. Against this background, the study investigates the pros and cons of a comprehensive tax autonomy of Austria's Länder governments and discusses options for a design of a reformed system. Based on a comprehensive overview of relevant theoretical and empirical approaches to tax autonomy, the study develops a check list of suitable options and estimates their static revenue effects at the Länder level.