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Does Size Matter? The Impact of Changes in Household Structure on Income Distribution in Germany

  • Andreas Peichl
  • Nico Pestel
  • Hilmar Schneider

In Germany, two observations can be made over the past 20 years: First, income inequality has been constantly increasing while, second, the average household size has been declining dramatically. The analysis of income distribution relies on equivalence-weighted incomes which take into account household size. Therefore, there is an obvious link between these two developments. The aim of the paper is to quantify how the trend towards smaller households has influenced the change in income distribution. In order to do so, we are using a decomposition of changes in inequality measures over time allowing for a separation between wage and demographic effects respectively. We propose similar decompositions for the change in poverty and richness as well and compare them with results that were obtained by a re-weighting procedure. Our results show that the income gap would also have increased without the demographic trend. But its level would be lower than it actually is. In addition, the demographic effect turns out to be larger for incomes before tax and benefits.

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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 280.

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Length: 37 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp280
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  1. Olivier Bargain & Tim Callan, 2007. "Analysing the effects of tax-benefit reforms on income distribution : a decomposition approach," Working Papers 200713, School of Economics, University College Dublin.
  2. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
  3. Peichl, Andreas & Schaefer, Thilo & Scheicher, Christoph, 2006. "Measuring Richness and Poverty," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 06-11, University of Cologne, FiFo Institute for Public Economics.
  4. Udo Ebert & Patrick Moyes, 2002. "Equivalence scales reconsidered," Post-Print hal-00156680, HAL.
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  8. Bover, Olympia, 2008. "Wealth inequality and household structure: US vs. Spain," CEPR Discussion Papers 6680, C.E.P.R. Discussion Papers.
  9. Joachim Frick & Jan Goebel, 2008. "Regional Income Stratification in Unified Germany Using a Gini Decomposition Approach," Regional Studies, Taylor & Francis Journals, vol. 42(4), pages 555-577.
  10. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
  11. Mookherjee, Dilip & Shorrocks, Anthony F, 1982. "A Decomposition Analysis of the Trend in UK Income Inequality," Economic Journal, Royal Economic Society, vol. 92(368), pages 886-902, December.
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  13. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
  14. Jenkins, Stephen P, 1995. "Accounting for Inequality Trends: Decomposition Analyses for the UK, 1971-86," Economica, London School of Economics and Political Science, vol. 62(245), pages 29-63, February.
  15. Molly Martin, 2006. "Family structure and income inequality in families with children, 1976 to 2000," Demography, Springer;Population Association of America (PAA), vol. 43(3), pages 421-445, August.
  16. Stefan Bach & Giacomo Corneo & Viktor Steiner, 2009. "From Bottom To Top: The Entire Income Distribution In Germany, 1992-2003," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(2), pages 303-330, 06.
  17. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-25, April.
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  19. Sen, Amartya K, 1976. "Poverty: An Ordinal Approach to Measurement," Econometrica, Econometric Society, vol. 44(2), pages 219-31, March.
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