Explaining Rising Income Inequality in Germany, 1991-2010

47 Pages Posted: 12 Oct 2013

See all articles by Kai Schmid

Kai Schmid

Macroeconomic Policy Institute (IMK), Hans Böckler Foundation

Ulrike Stein

Macroeconomic Policy Institute (IMK), Hans Böckler Foundation

Date Written: September 2013

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.

Keywords: Income Inequality, Redistribution, SOEP

JEL Classification: D31, I30, J30

Suggested Citation

Schmid, Kai and Stein, Ulrike, Explaining Rising Income Inequality in Germany, 1991-2010 (September 2013). SOEPpaper No. 592. Available at SSRN: https://ssrn.com/abstract=2339128 or http://dx.doi.org/10.2139/ssrn.2339128

Kai Schmid (Contact Author)

Macroeconomic Policy Institute (IMK), Hans Böckler Foundation ( email )

Düsseldorf
Germany

Ulrike Stein

Macroeconomic Policy Institute (IMK), Hans Böckler Foundation ( email )

Düsseldorf
Germany

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