Federalism and demographics

In the medium and long term, not only will demographic change result in a marked decline in Germany's population, it will also cause noticeable age-related shifts. And Germany is hardly the only country facing such challenges; almost all European nations will have to come up with new responses to the impacts of demographic change. This is particularly true in the areas of fiscal and budgetary policy, since as populations shrink, fewer taxpayers must shoulder ever-larger public-sector commitments.

As per-capita debt levels rise, government revenues will fall, given the reduced number of workers contributing to social assistance programs through payroll deductions. In Germany, this will be especially true in the five eastern states (Mecklenburg-Western Pomerania, Brandenburg, Saxony-Anhalt, Thüringen und Saxony), and Berlin. Since the current system of redistributing tax revenues among federal and state governments is based on population size, those states with the weakest financial base to begin with will also receive fewer funds. The Bertelsmann Stiftung is assembling a white paper, written by experts in the areas of federalism and finance, to show which actors in the country's federal-state network will be the winners and which will be the losers as a result of demographic shifts.

It also intends to generate new momentum for implementing learning processes between federal and state actors by using an Internet-based platform to create a cross-border comparison of best practices. The platform's goal is to increase a readiness among administrators to support their own state by adopting best practices from elsewhere. These efforts are designed to boost transparency and promote a practical, effective "competition of ideas" between the federal and state levels -- especially in policy areas that the public finds particularly relevant. At the same time, these efforts must take into account specific regional structures and characteristics, those that differentiate the country's eastern from its western states, for example.

In addition to necessitating a search for potential solutions aimed at reducing long-standing debt and budget deficits, the consequences of demographic change also raise questions about the supply of public goods. Both issues are a particular challenge for federalist systems since the responsibilities for each area are distributed among a range of actors at various levels.

Demographic change will also impact different regions differently, something that casts a new light on the idea of nationwide equality. Which services should federal and state agencies continue to provide to regions with diminishing populations and weakening demographic structures? To what extent does a decentralization of governmental responsibilities implicitly reinforce an erosion of national identity, given that different states will make public services available based on different standards?   Demographic change must be seen as something positive, especially in federally structured nations such as Germany. The heterogeneity of the country's states offers a key opportunity to engage in a "competition of ideas" that can generate effective solutions reflecting each region's individual circumstances.