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Explaining Rising Income Inequality in Germany, 1991-2010

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  • Kai Daniel Schmid
  • Ulrike Stein

Abstract

In Germany, inequality of net equivalized income increased noticeably in the first half of the new millennium. We aim to identify the main drivers of this rise in income inequality since the early 1990s. We provide a broad overview of the circumstances under which inequality evolved, i.e. which changes in the German economy are most likely to provide an explanation for changes in income concentration. To explain the development of the distribution of net equivalized income we analyze changes in the distribution of market income as well as shifts in the effectiveness of public redistribution mechanisms. We find that cyclical and structural changes in the labor market, the increasing relevance of capital income as well as the decreasing effectiveness of the public mechanisms of income redistribution are the main explanatory factors for the development of income inequality. In addition to this, we discuss several issues that are of high relevance for the distribution of economic resources but are not directly covered in the analysis of net equivalized income. Most significantly, the design of the tax and social security contributions burden as well as the rising relevance of value-added taxes have exhibited negative redistributive effects for low income households.

Suggested Citation

  • Kai Daniel Schmid & Ulrike Stein, 2013. "Explaining Rising Income Inequality in Germany, 1991-2010," IMK Studies 32-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:studie:32-2013
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    1. Da Ventotene boys a Chicago boys: lo spiaggiamento della sinistra
      by Alberto Bagnai in Goofynomics on 2015-12-25 22:24:00

    Citations

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    Cited by:

    1. Eva Schlenker & Kai Schmid, 2015. "Capital income shares and income inequality in 16 EU member countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(2), pages 241-268, May.
    2. Carrillo-Tudela, Carlos & Launov, Andrey & Robin, Jean-Marc, 2018. "The Fall in German Unemployment: A Flow Analysis," IZA Discussion Papers 11442, Institute of Labor Economics (IZA).
    3. Moritz Drechsel-Grau & Kai Daniel Schmid, 2013. "Consumption-Savings Decisions under Upward Looking Comparisons: Evidence from Germany, 2002-2011," IMK Working Paper 118-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Eva Schlenker & Kai Daniel Schmid, 2013. "Capital Income Shares and Income Inequality in the European Union," IMK Working Paper 119-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. repec:jns:jbstat:v:238:y:2018:i:1:p:3-32:n:3 is not listed on IDEAS
    6. repec:zag:busexc:v:12:y:2018:i:1:p:33-52 is not listed on IDEAS
    7. Biewen, Martin & Ungerer, Martin & Löffler, Max, 2016. "Trends in the German income distribution: 2005/06 to 2010/11," ZEW Discussion Papers 16-088, ZEW - Leibniz Centre for European Economic Research.
    8. Tassos Giannitsis & Stavros Zografakis, 2015. "Greece: Solidarity And Adjustment In Times Of Crisis," IMK Studies 38-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    9. repec:oup:cesifo:v:64:y:2018:i:3:p:339-344. is not listed on IDEAS
    10. Weigert, Benjamin & Klemm, Marcus, 2015. "Composition matters! Wage inequality and the demographic and educational structure of the labor force in Germany," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112914, Verein für Socialpolitik / German Economic Association.
    11. Alexander Herzog-Stein & Fabian Lindner & Rudolf Zwiener, 2013. "Is the supply side all that counts?," IMK Report 87e-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    12. Hermann Adam, 2014. "Die politische Ökonomie wachsender Ungleichverteilung der Einkommen," Wirtschaftsdienst, Springer;German National Library of Economics, vol. 94(2), pages 104-111, February.
    13. repec:oup:cesifo:v:64:y:2018:i:3:p:345-370. is not listed on IDEAS
    14. Späth Jochen & Schmid Kai Daniel, 2018. "The Distribution of Household Savings in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 238(1), pages 3-32, February.
    15. Welsch, Heinz & Kühling, Jan, 2015. "Income comparison, income formation, and subjective well-being: New evidence on envy versus signaling," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 59(C), pages 21-31.
    16. Ulrike Stein, 2017. "Earnings Inequality in Germany: A Decomposition-Analysis," SOEPpapers on Multidisciplinary Panel Data Research 955, DIW Berlin, The German Socio-Economic Panel (SOEP).
    17. Michele Battisti & Gabriel Felbermayr & Sybille Lehwald, 2016. "Inequality in Germany: Myths, Facts, and Policy Implications," ifo Working Paper Series 217, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    18. Tassos Giannitsis & Stavros Zografakis, 2018. "Crisis management in Greece," IMK Studies 58-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    19. Klemm, Marcus & Weigert, Benjamin, 2014. "Does composition matter? Wage inequality and the demographic and educational structure of the labor force in Gemany," Working Papers 06/2014, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.

    More about this item

    Keywords

    Income Inequality; Redistribution; SOEP;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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