Local government finances in Germany are on a rollercoaster ride. Last year's record deficits, driven largely by social spending, are continuing. The ‘investment booster’ threatens large additional tax losses. On the other hand, the infrastructure package promises relief for local government investment gaps. And in the talks with the federal states, the Chancellor has promised compensation for municipal tax losses. Any short-term relief is welcome to those affected. However, the structural problem of the missing and unachievable connectivity between the federal government and the municipalities requires a structural solution, states Michael Thöne in heute journal up:date. He explains further on LinkedIn.

Municipal investment and large investment backlogs are well-known indicators of the financing and implementation constraints faced by German cities, municipalities and districts. The federal government's €500 billion infrastructure package is intended to provide some support in this area, too. However, the municipal infrastructure of the future will differ greatly from that of the past. In particular, it will be important to transform long-lived capital stock towards climate neutrality and avoid carbon lock-ins. The associated public finance and local political challenges were examined in a research project funded by the Sparkassen-Finanzgruppe's Stiftung für die Wissenschaft – see the new FiFo Report No. 37.

Defence, productivity, trade, research – Europe's global challenges are also its greatest opportunities. The high-level panel discussion at the EESC on European public goods offers a great chance to look at the tasks, funding and practical implementation of a ‘more European EU’. Eulalia Rubio, Marco Buti, Charles Wyplosz, Michael Thöne and others will be discussing these issues with the EESC on 5 June 2025 at 2.30 p.m. and, if you wish, with you too. Webstream and Sli.do participation via this link.

What does resilient water management cost in North Rhine-Westphalia? What would be the cost of inaction in adapting to climate change? How can the financing instruments for water and wastewater management and water protection be strengthened and further developed? These questions will be examined in a study being prepared by FiFo Cologne in collaboration with the Osnabrück-based Gesellschaft für Wirtschaftliche Strukturforschung (GWS) on behalf of the North Rhine-Westphalian state parliament's Enquete Commission on “Water in Times of the Climate Crisis”. At the kick-off meeting on 12 May 2025 in the state parliament, the project team presented its research plan to the Enquete Commission.

The Federal Ministry of Labour and Social Affairs has published its report on old-age income in Germany (ASID 2023) online. The report, which was prepared for the first time by the survey specialist infas in cooperation with FiFo Köln, mark an important steps forward: Among other things, the survey was gender-balanced throughout for the first time. With the help of a tailor-made tax microsimulation model, FiFo project manager Eva Gerhards also ensured that apples are no longer being compared with oranges: all types of income are now reported as net income. This creates a reliable data basis for further research.

At the request of the Rhineland-Palatinate Ministry of Finance, FiFo Cologne has examined the vertical components of regional financial equalisation in this German Land. In his report, FiFo researcher Eric Schuß focuses in particular on the marked fluctuations in the finances of municipalities and the Land as a result of the multiple crises since 2020, as well as the long-standing issue of low municipal property and business taxes in the Land. The report is now available as FiFo Report No. 36.

Germany's municipalities are deep in the red, but the union is demanding an 8 per cent pay rise for federal and municipal employees. How can this be squared? In an interview with Deutschlandfunk, Michael Thöne looks at the valid arguments on both sides of the bargaining table. The hefty packages of new public debt emerging from the coalition negotiations in Berlin are intended to pay for defence and infrastructure, but they will also – albeit deceptively – ease the fiscal pressure on all public spending. But collective bargaining cannot solve the actual economic problem: the worsening shortage of skilled labour must be addressed with structural solutions – through bureaucratic streamlining, the use of high-tech and through qualified immigration.

The reformed property tax is in force since 2025. North Rhine-Westphalia and two other Länder allow their municipalities to apply a lower tax rate to residential properties than to commercial properties. As a result, it is no longer possible to use the previous method of taking equal account of property tax revenue in municipal fiscal equalisation. However, fears that a new method would be complicated or that property tax B would even have to be removed from the financial equalisation system are unfounded. In FiFo Report No. 35, Eva Gerhards and Michael Thöne show that the new ‘one for all’ method actually makes this possible in a simple, efficient and equitable manner. The study also recommends a solution for the optional property tax C on vacant, ready-to-build-on land.

Many cities and municipalities are very active in the fight against climate change. But why? In an article on municipal climate protection in the just-published issue 1/25 of the Journal of Environmental Policy and Law (ZfU), Thomas Döring and Michael Thöne analyse this observation which is, at first glance, counterintuitive from a fiscal federalism perspective. On closer inspection, however, these activities are as economically well-founded as they are necessary – not least in view of the growing importance of municipalities as climate protection actors at the international level.