Provision of ecological goods and services at the local level is often related to benefits at higher governmental levels. On the one hand, sustainable watershed management and biodiversity conservation are strongly connected to local land-use decisions. On the other hand, related conservation activities and protected areas are frequently associated with regional, national or even global public goods. Therefore, spatial externalities or spillover effects exist that – if not adequately compensated – lead to an under-provision of the public goods and services concerned. This chapter investigates fiscal transfers as an innovative instrument for compensating local jurisdictions for the ecological goods and services they provide across local boundaries. From a public finance perspective, fiscal transfers are a suitable instrument for internalising spatial externalities. A case study is presented that investigates the present and potential use of fiscal transfers for ecological public functions in the German federal systems. Analysis of the German system of fiscal equalisation at the local level shows that, so far, mostly end-of-the-pipe activities are currently considered with resource protection and nature conservation being widely underrepresented.
Ring, I. (2007), "Fiscal Transfers for Compensating Local Ecological Services in Germany", Erickson, J.D., Messner, F. and Ring, I. (Ed.) Ecological Economics of Sustainable Watershed Management (Advances in the Economics of Environmental Resources, Vol. 7), Emerald Group Publishing Limited, Bingley, pp. 329-346. https://doi.org/10.1016/S1569-3740(07)07014-9
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