The two German federal states of Bavaria and Hesse recently filed a lawsuit in the German supreme court against the current German vertical equalization scheme, which regulates the financial relationship of the federal states and the (re)distribution of tax revenue across the states. This project aims at advising the federal state of Baden-Wuerttemberg with respect to economic issues relating to this lawsuit. Along with evaluations of specific rules of the current equalization scheme, ZEW also provides consultancy relating to general economic questions which arise within the scope of the lawsuit.