Arends, Helge creator text xu| 2017 continuing ng p.673-706. By focusing on the relevance of Germany's first fiscal federalism reform of 2005 for the education sector, I investigate how two key constitutional principles, namely the principle of equal living conditions across regions and the principle of cultural sovereignty of the states, relate to each other. In a first step, I investigate the determinants of the newly decentralized competences to determine teachers' salaries and the impact on educational poverty. In a second step, I discuss whether these new sub-central competences have led to an increase in spatial educational inequalities. The results indicate that federal states make use of the new competences in a rational manner. Higher teacher pay, in turn, has a significant and conducive effect on the outcome of the federal states' education sectors. There is some evidence that this has led to increasing spatial inequalities; however, the evidence is not unambiguous. Intergovernment fiscal relations - Germany Federalism Living conditions Publius: The Journal of Federalism 180718