Which City in Germany Has the Biggest Economy: Berlin Leads the Pack

The city with the biggest economy in Germany is Berlin. This capital city demonstrates a robust, diverse economic landscape that includes sectors such as technology, media, and tourism. Other major economic centers include Frankfurt, which serves as a financial hub, and Munich, renowned for its strong industries in technology and engineering. Nevertheless, Berlin emerges as the city with the highest overall economic output among German cities.

Defining the 'Big Economy'

To explore which city truly boasts the biggest economy, it's essential to define what constitutes a significant economic output. One key factor is per capita values, which give a more accurate reflection of economic health.

However, the mere nominal turnover of businesses cannot suffice as the sole determinant. To illustrate, offshore financial centers like the Cayman Islands or Delaware would unjustly appear as economic giants due to the presence of 'letter box companies.' Instead, a more suitable approach for Germany is to consider municipal tax power, which reflects the productivity of a municipality.

Municipal Tax Power: An Insight into Economic Efficiency

Business Tax: The business tax is calculated based on a somewhat adjusted income generated by a business. The share of tax revenue that each municipality receives is calculated according to the accumulated income of individuals whose regular workplace is located within that municipality. This system takes into account the value of the work performed, ensuring that higher incomes reflect higher productivity.

This tax system ensures that municipalities receive a fair share of income generated within their jurisdiction. Nevertheless, some cities, like Berlin, face criticism for having wealthy suburb towns around them receiving disproportionate shares of tax revenue, while the city itself fails to benefit as much. However, it's important to note that the business tax serves to compensate for the high commuting of individuals who use the city's infrastructure.

Tax Allocation and Comparison

The municipalities also receive a share of the income tax. This share is calculated based on the income earned and taxed from the inhabitants. Many larger cities argue that wealthy suburb towns benefit significantly while the city itself receives less. In contrast, the income tax share is crucial for covering communal costs associated with the daily lives of inhabitants, such as maintaining roads, funding schools, and other local services. Moreover, there is a cap on individual incomes considered for tax allocation.

Additionally, municipalities receive a share of the Value Added Tax (VAT). Similar to the income tax share, this is allocated based on the volume of VAT generated within the municipality.

Top Tax-Generating Municipalities

Based on the aforementioned tax allocation system, the following are the leading municipalities in Germany as of 2018:

Landkreis Munich, a county not a city, collected taxes amounting to 3,816 Euros per capita. Coburg city received 2,919 Euros per capita, which is heavily influenced by the presence of one of Germany's largest insurance companies. Frankfurt am Main followed with 2,810 Euros per capita.

The complete data can be found on page 16 of the provided document.

Visual Comparison of Larger German Cities

For a comprehensive comparison of larger German cities, refer to the chart titled “Kommunale Steuerkraft 2019” provided on the State of Berlin's webpage. This chart offers a detailed insight into the municipal tax potential of major cities, highlighting Berlin's outstanding performance.