As part of national fiscal policy coordination, regular forecasts of the development of public budgets are required. This research project identifies determinants of the payments made by the federal states (Länder) to municipalities and municipal associations, and condenses them into a four-step estimation approach. The approach accounts for the fact that the projection must differentiate between current allocations and allocations and grants for investments, and it ensures consistency with the federal budget. In the report, the individual components of the payments are first analysed using the official budget classification by economic categories. The composition and determinants are analysed, taking into account special effects and one-off measures. For the projection presented in the research project, all payments by the federal government to the states were classified in a first step according to whether they are intended fully, partially, or supplemented by state allocations for municipalities and municipal associations. The relevant budget items in the federal budget and the special funds were evaluated in detail based on institutional regulations. In a second step, the projection reflects that Länder usually adjust payments to their municipalities with a delay if their actual tax revenues deviate from the projected tax revenues. In order to reflect that and to be able to adjust the estimate also during the year after new tax estimates, a correction calculation is inserted. Based on an aggregated marginal revenue ratio and a lag structure – each of which is based on the institutional regulations in the fiscal equalisation laws of the individual Länder – the amount is estimated that is paid annually to the municipalities to compensate for deviations in estimates of the tax revenues of the Länder. In a third step, payments that cannot be explained by payments from the federal government and that are not caused by offsetting deviations from estimates are forecasted based on the tax revenues of the Länder. A lag structure is applied, which is based on the regulations in the respective state legislations for determining the fiscal equalisation funds. The report analyses the individual fiscal equalisation laws and derives the relevant assumptions from them.The breakdown into payments from core or extra budgets and into current payments and investment payments follows. The outgoing payments of the Länder do not match the corresponding incoming payments of the municipal level in the financial statistics. The differences that arise are presented descriptively and the options are outlined as to how these deviations can be dealt with in the projection.