Between 1913 and 2024, financial power in Germany shifted significantly to the federal government, and according to an analysis by the Institute for Conservative Economic Policy, this fundamentally altered federalism to this day. The restructuring affected the Reich/federation, the states, and municipalities simultaneously, while the state assumed an increasing number of tasks, expenditures, and regulatory functions. As a result, the states lost influence, while the federal government pooled more resources, set priorities, and increasingly determined the state’s financial framework.
The federal government gains, the states lose
In 1913, the Reich’s share of public spending was around 35 percent. By 2024, excluding social security, the federal government’s share had reached 39.2 percent. While the increase appears limited, it nevertheless significantly shifts the balance of power, because financial control usually translates into political influence.
The transformation is even more evident in the example of Bavaria. In 1913, the Kingdom of Bavaria accounted for 7.4 percent of total government spending, while in 2024, the Free State of Bavaria accounted for only 3.4 percent. Even a large state thus lost considerable fiscal weight, while the federal government increased its share.
Federalism is losing substance with a growing government spending ratio
The state as a whole intervenes much more deeply in the economy and society today than before the First World War. In 1913, public spending by the Reich, states, and municipalities amounted to around 18 percent of the gross national product. By 2024, it had risen to 48.1 percent of the gross national product, and including social security, the ratio was even higher at 56.8 percent. The state thus grew massively, but it was primarily the federal level that gained power.
Even pure federal spending demonstrates this shift. In 1913, Reich spending amounted to 6.3 percent of the gross national product. In 2024, federal spending amounted to between 12.6 and 14.3 percent of GDP, depending on the calculation method. The federal government thus significantly expanded its fiscal leeway, while the states were unable to catch up to the same extent.
Social Spending and Debt Strengthen the Central Government
The structure of spending has also changed profoundly. Before the First World War, a large portion of funds went to defense and infrastructure. Today, however, social services dominate, as 41 percent of federal spending in 2024 went to this area, while defense accounted for only 14 percent. This further strengthens the federal government, because it is precisely there that major distributional decisions are made.
Debt also underscores the shift in power. In 1913, the combined debt of the Reich and the states amounted to 41 percent of the gross national product. In 2024, Germany’s public debt amounted to €2,509 billion, or 58 percent of GDP, with 69.1 percent of that being attributable to the federal government. However, whoever bears the largest share of the debt usually also has the greatest leverage in fiscal policy.
Germany’s Federalism Formally Remains in Place
Bavaria also exhibits a striking contrast in its debt levels. In 1913, the kingdom’s debt amounted to 56 percent of its own gross national product. By 2024, the Free State’s debt had fallen to just 4.6 percent of regional GDP. This speaks to sound state finances on the one hand, but on the other hand, it demonstrates the loss of its own fiscal significance.
Added to this is the growing role of special funds. By 2024, 14.8 percent of federal spending was channeled through such structures, while the traditional budget became less transparent. This gives the federal government additional flexibility, and federalism continues to lose practical autonomy. Germany formally remains a federal state, but its financial operations are increasingly top-down.