Understanding Rising Income Inequality in Germany
AbstractWe examine the causes for rising income inequality in Europe’s most populous economy. From 2000 to 2006, Germany experienced an unprecedented rise in net equivalized income inequality and poverty. At the same time, unemployment rose to record levels and there was evidence for a widening distribution of labour market returns, as well as that of other market incomes. Other factors that possibly contributed to the rise in income inequality were changes in the tax system, changes in the household structure (in particular the rising share of single parent households), and changes in other socio-economic characteristics (e.g. age or education). We address the question of which factors were the main drivers of the observed inequality increase. Our results suggest that most of the increase can be explained by both changes in employment outcomes and in market returns, and, to a similar extent, by changes in the tax system. Changes in household structures and other household characteristics seem to have played a much smaller role. Put into an international perspective, our results suggest that rising income inequality in non-Anglo-Saxon countries is the likely result of both increasing inequality in market returns and increasing inequality in employment outcomes, as well as of idiosyncratic changes such as tax reforms.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5062.
Length: 44 pages
Date of creation: Jul 2010
Date of revision:
Publication status: published in: Review of Income and Wealth, 2012, 58 (4), 622-647
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Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- I30 - Health, Education, and Welfare - - Welfare and Poverty - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-31 (All new papers)
- NEP-EUR-2010-07-31 (Microeconomic European Issues)
- NEP-LAB-2010-07-31 (Labour Economics)
- NEP-LTV-2010-07-31 (Unemployment, Inequality & Poverty)
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