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.
About the topic
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.
IW-Policy Paper No. 5 30. June 2026 Martin Beznoska / Tobias Hentze
Reform of Personal Income Tax
Reforming personal income tax has been on the political agenda for years. Although bracket creep has largely been offset over the past ten years, the income tax schedule itself has not been structurally reformed.
IW-Report No. 29 19. June 2026 Ruth Maria Schüler / Stefanie Seele
Abolition of the Additional Earnings Limit
The ageing population in Germany is increasing pressure on the social insurance systems and will (in the future) exacerbate the shortage of skilled labour.
IW-Trends No. 2 19. May 2026 Jochen Pimpertz / Maximilian Stockhausen
The Reform of Old-Age Pension Systems in Germany
Concerns about the risk of poverty in old age have prompted a multitude of reform proposals, most of which aim to introduce additional redistributive elements into Germany’s statutory pension scheme.
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.
Making Apprenticeships a Success: From Marketing to Hiring
Paula Risius / Dirk Werner / Philip Herzer / Fritz Orange / Regina Flake / Franziska Arndt / Yasin Küçükyavuz / Edgar Schmitz
In-company vocational training is a key factor in securing skilled labour. The first step in investing in future employees is to approach and recruit new apprentices. For many companies, filling the apprenticeship positions they offer is a challenge.
Contribution
31. August 2026
Samina Sultan in the Financial Times
Letter: Expanded EU carbon border tax is not a reaction to US tariffs
In his op-ed (August 12) Andrew Puzder, the US ambassador to the EU, accused the EU of double standards. He argued that criticising US tariffs on steel and aluminium derivatives while simultaneously imposing Carbon Border Adjustment Mechanism charges on the same products, is hypocritical.
European Minimum Wage Directive and Strengthening Collective Bargaining Coverage
Hagen Lesch / Lennart Eckle / Sandra Vogel
The EU Minimum Wage Directive recommends that EU Member States achieve a collective bargaining coverage of 80 per cent to ensure adequate minimum wages.
Securing Energy Supply While Advancing Climate Goals
Andreas Fischer in Intereconomics
Europe faces a dual challenge: eliminating lingering dependencies on energy imports while simultaneously accelerating the transformation towards climate neutrality.
Collective bargaining coverage and functional income distribution in international comparison
Christoph Schröder
The study examines whether a high level of collective bargaining coverage influences the functional income distribution between companies and employees.
Trade and Cooperation Between the EU and the Gulf States
Simon Gerards Iglesias / Nicolas Reeves*
Driven especially by the policies of US President Donald Trump, rising global economic fragmentation and geopolitical disorder have lent renewed strategic importance to the prospective free trade agreement (FTA) between the European Union (EU) and the Gulf Cooperation Council (GCC).
AI Specialists in Public Administration – Needs and Options for Action
Jan Büchel / Jan Felix Engler / Nicolai Krüger*
The use of AI in Germany’s public sector not only offers potential for efficiency gains but, in view of the sector’s shortage of skilled staff, is also urgently needed.
Free and Fair Trade Club to build Middle Power Weight
Jürgen Matthes
This paper proposes that the EU should build a cooperation platform together with the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership).
Free and Fair Trade Club – Deeper Cooperation Between the EU and the CPTPP
Jürgen Matthes in Intereconomics
The European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership should build a lasting cooperation platform, which could be named the Free and Fair Trade Club, in order to achieve various geostrategic aims.
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