Carsten Hefeker, University of Basel

This paper argues that the hyperinflation in Germany that followed the first world war was due to the ill designed fiscal federalism that followed German unification in 1871. The way fiscal relations between the central power and the states were designed prompted systematically excessive debt for the Reich. The system was the outcome of overlapping distributional conflicts between central power and the states, and between capital and labor. This example has broader, and so far, disregarded implications for the debate about fiscal federalism in a European monetary union.