How does Germany distribute tax revenue from wealthier regions to less-prosperous regions?

Germany utilizes a system of tax equalization to distribute revenue from wealthier or more populous regions to those that are less prosperous or smaller. This process, known as horizontal financial equalization, is designed to address the uneven distribution of taxing potential among the German states.12

Following the reunification of Germany, this system became a subject of significant controversy, as the economically weaker eastern states became entitled to subsidies funded by the western states. These transfers were often met with resentment among many western Germans.12

Beyond this horizontal mechanism, the federal government also plays a role in fostering economic development in rural and industrial regions identified as having specific economic challenges.1