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Why has income inequality in Germany increased from 2002 to 2011? A behavioral microsimulation decomposition

Robin Jessen

No 2016/24, Discussion Papers from Free University Berlin, School of Business & Economics

Abstract: I propose a method to decompose changes in income inequality into the contributions of policy changes, wage rate changes, and population changes while considering labor supply reactions. Using data from the Socio-Economic Panel (SOEP), I apply this method to decompose the increase in income inequality in Germany from 2002 to 2011, a period that saw tax reductions and a controversial overhaul of the transfer system. The simulations show that tax and transfer reforms have had an inequality reducing effect as measured by the Mean Log Deviation and the Gini coefficient. For the Gini, these effects are offset by labor supply reactions. In contrast, policy changes explain part of the increase in the ratio between the 90th and the 50th income percentile. Changes in wage rates have led to a decrease in income inequality. Thus, the increase in inequality was mainly due to changes in the population.

Keywords: Inequality; Decomposition; Labor Supply; Microsimulation; Policy Reform (search for similar items in EconPapers)
JEL-codes: D31 H23 I38 J31 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-eur, nep-lma and nep-pbe
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Related works:
Journal Article: Why has Income Inequality in Germany Increased From 2002 to 2011? A Behavioral Microsimulation Decomposition (2019) Downloads
Working Paper: Why Has Income Inequality in Germany Increased from 2002 to 2011? A Behavioral Microsimulation Decomposition (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fubsbe:201624

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