Understanding Rising Income Inequality in Germany

Martin Biewen and Andos Juhasz

No 5062, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We 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.

Keywords: kernel density estimation; unemployment; poverty; income inequality (search for similar items in EconPapers)
JEL-codes: C14 D31 I30 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2010-07
New Economics Papers: this item is included in nep-eur, nep-lab and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Published - revised version published in: Review of Income and Wealth, 2012, 58 (4), 622-647

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