The Effect of Demographic Transition on Tax Revenues in Germany

As a result of high net immigration, both Germany’s overall population and its workforce potential are currently growing. However, within a very few years this demographic trend will be reversed, leading to a decline in the population as a whole and especially in the number of those gainfully employed. The fall in income tax revenues resulting from a shrinking and ageing society will place a huge strain on government finances, an effect further enhanced by the shift of the tax burden from pension contributions to pension benefits. In 20 years’ time the annual price-adjusted revenue from income tax is simulated to be € 18 billion or almost 7 per cent lower than today.