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Distribution and Public Finances

The national budgets of the federal government, the states, the municipalities and the social security funds have a volume of just under half of Germany's gross domestic product. After running deficits for decades, the state as a whole recently achieved surpluses before the Corona crisis. Thanks to low interest rates and rising revenues from taxes and social security contributions, Germany did not have to incur any new debt. However, the Corona crisis has again led to rising government spending, lower tax revenues and thus higher government debt overall, although the scope for government investment is limited by the debt brake. Germany currently has a debt level of more than two trillion euros.

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In addition to the openly disclosed debt, implicit debt lies dormant in the social system in the form of unfunded benefit commitments for pension, health and long-term care insurance. Germany currently spends around one-third of its economic output on social benefits, which already puts it in the lead among industrialized nations. Demographic change will place even greater demands on the social systems in the future.

The development of income and wealth inequality is the subject of much controversial debate in Germany. Although the inequality of disposable household incomes in Germany is higher today than it was at the beginning of the 1990s, it has not changed significantly since 2005. In an international comparison, it is low. For example, the top ten percent receive just over 30 percent of incomes. The wealthiest ten percent own around 60 percent of total assets. Consequently, wealth is distributed more unequally than disposable income. However, the upper class is not quite as aloof as these figures suggest: A large proportion of wealth is tied up in businesses that provide the livelihood for many millions of people in the form of jobs.

Due to technological progress, companies are increasingly looking for more highly qualified employees - with correspondingly higher salaries. At the same time, low-skilled workers face greater competition from workers from abroad. Because of these and other trends, income distribution in Germany - as in all industrialized countries - widened in the 1990s and up to the mid-2000s. Unlike most other countries, however, Germany was recently able to slow the income drift and fix it at the 2005 level. The good economic development and the unprecedented reduction in unemployment have improved the living situation of millions of people and stabilized income levels.

The state intervenes more strongly in income distribution in Germany than in many other countries, so inequality in Germany is low. As convoluted as the effects on redistribution are in detail, the result is clear: Those who earn more receive less state pay and pay higher taxes. Conversely, the less citizens earn, the more they receive from the state. The strong shoulders thus bear a heavier burden.

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Measuring the solidarity principle in Germany’s statutory health insurance system
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Would universal health insurance lead to more solidarity?

The principle behind Germany’s statutory health insurance (SHI) system, into which all employees up to a certain income threshold are obliged to pay a per¬centage of their earnings, is one of solidarity.

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Economic Effects of the BDI tax model for the future
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Economic Effects of the BDI tax model for the future

In international comparison, Germany is a high-tax country. Since the corporate tax reform in 2008, the burden has increased while many other countries have lowered tax rates.

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An International Comparison with a Special Focus on the Case of Germany
Judith Niehues / Maximilian Stockhausen IW-Report No. 18 19. May 2021

Inequality Revisited: An International Comparison with a Special Focus on the Case of Germany

This report summarizes the latest findings on the development and levels of global income and wealth inequality and puts special emphasize on the situation in Germany.

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On the Impact of Pay Differentials on the Division of Tasks in Couple Households
Jörg Schmidt / Oliver Stettes IW-Trends No. 1 8. March 2021

On the Impact of Pay Differentials on the Division of Tasks in Couple Households

The present study examines the effects of pay differentials in dual earner couple households on the amount of time that the partners assign to their professional activities and to domestic work. In the context of a gender-specific division of tasks, we ...

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103 results
Read study
Measuring the solidarity principle in Germany’s statutory health insurance system
IW-Analyse No. 143 13. July 2021

Would universal health insurance lead to more solidarity?

Martin Beznoska / Jochen Pimpertz / Maximilian Stockhausen

The principle behind Germany’s statutory health insurance (SHI) system, into which all employees up to a certain income threshold are obliged to pay a per¬centage of their earnings, is one of solidarity.

IW

Read study
Economic Effects of the BDI tax model for the future
Expertise 10. June 2021

Economic Effects of the BDI tax model for the future

Tobias Hentze / Galina Kolev

In international comparison, Germany is a high-tax country. Since the corporate tax reform in 2008, the burden has increased while many other countries have lowered tax rates.

IW

Read study
An International Comparison with a Special Focus on the Case of Germany
IW-Report No. 18 19. May 2021

Inequality Revisited: An International Comparison with a Special Focus on the Case of Germany

Judith Niehues / Maximilian Stockhausen

This report summarizes the latest findings on the development and levels of global income and wealth inequality and puts special emphasize on the situation in Germany.

IW

Read study
On the Impact of Pay Differentials on the Division of Tasks in Couple Households
IW-Trends No. 1 8. March 2021

On the Impact of Pay Differentials on the Division of Tasks in Couple Households

Jörg Schmidt / Oliver Stettes

The present study examines the effects of pay differentials in dual earner couple households on the amount of time that the partners assign to their professional activities and to domestic work. In the context of a gender-specific division of tasks, we investigate how much time the two sexes allocate to their occupations and to household tasks in relation to their partners.

IW

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Investment, Human Capital and Growth Effects of Public Spending
IW-Policy Paper No. 2 3. February 2021

Investment, Human Capital and Growth Effects of Public Spending

Martin Beznoska / Björn Kauder / Thomas Obst

Unlike public sector consumption, public investment is often regarded as contributing to growth. Yet while spending on "intangible" goods such as education does not count as investment, even though it is potentially growth-enhancing, expenditure with little to no effect on growth often does.

IW

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