Jens Holst

To have any chance of becoming comprehensive and potentially universal, social protection requires societies to adjust unequal risks and differences in financial capacities between their members. Especially in welfare states, various equalisation mechanisms exist for balancing different social risks and unequally distributed purchasing power. These apply often, but by no means exclusively, to formal social security arrangements and are an integral part of social health protection schemes based on the principle of solidarity. Moreover, competitive health insurance markets require risk structure equalisation mechanisms in order to prevent or at least reduce risk selection. Beyond social protection systems as such, financial compensation mechanisms can be applied in broader settings at national and international levels. This paper will present two wellestablished examples illustrating the operating mode and the potential of inter-regional and inter-state equalisation mechanisms, namely the Federal Financial Equalisation System in Germany and the European Regional Development Fund. It will further briefly discuss the capacity of financial adjustment schemes to play a role in global social protection.