Germany considers giving states more autonomy on taxes

Such a proposal was unlikely to become law in Germany, said Christian Odendahl, chief economist for the Centre of European Reform. The country has a record of solidarity among states, with richer states spreading the wealth across the nation.

"I see very little prospect of tax competition in Germany, the reason being that the states would have to agree to that (in the upper house of parliament)," he said. In a best-case scenario, there might only be four of the 16 states in favour: Bavaria, Baden-Wuerttemberg, Hesse and Saxony.

Odendahl said, nevertheless, it was an interesting development.

"In general, reforming the way in which the different tiers of government are financed is certainly a good idea, and a job for a grand coalition. But I don't see strong tax competition as the outcome of this."