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-Report No. 48 10. November 2026 Martin Beznoska
Public Preferences Regarding Government Spending and Taxes
This study examines public preferences for government spending and taxation using a fully randomised paired conjoint experiment in the 2025 IW-Population-Survey.
A Comparison of Public Revenues Across the Federal States
To ensure equivalent living conditions, the federal government influences the revenues of the states and municipalities. Under the fiscal equalization system, financially weak states receive surpluses in the distribution of sales tax revenues, while financially strong states must accept shortfalls.
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.
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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.
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.
The Effects of Corporate Decarbonisation on Employment and Wages
Stefanie Seele / Oliver Stettes
While the surge in energy prices since 2022 is driving a structural change in the economy that will ultimately lead to its carbon-neutrality, job security remains high in sectors exposed to decarbonisation.
Event
11. November 2026
Alexander Radunz / Sandra Parthie
Online-Veranstaltungsreihe „Von Brüssel nach Berlin”: Der Euro als Leitwährung
Wir laden Sie herzlich zu einer weiteren Online-Veranstaltung unserer Veranstaltungsreihe „Von Brüssel nach Berlin“ ein. Mit ihr wollen wir in loser Folge Themen aus der europäischen in die deutsche Hauptstadt tragen.
Public Preferences Regarding Government Spending and Taxes
Martin Beznoska
This study examines public preferences for government spending and taxation using a fully randomised paired conjoint experiment in the 2025 IW-Population-Survey.
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Para la economía alemana, Argentina, como socio comercial y destino de inversión, ofrece más oportunidades que riesgos, ya que el país combina una política económica abierta con un considerable potencial en lo que respecta a materias primas y energía, competencia industrial y una base sólida de personal calificado.
Two years after US President Donald Trump’s re-election, the US midterm elections on November 3, 2026 offer the first nationwide referendum on his second term.
Aleksandar Vučić had led Serbia since 2014, first as prime minister and from 2017 as president, until his rule ended in October 2026 in a landslide defeat by the Student List. This report assesses the political and economic record of his twelve years in power.
Critical Choices: How Malaysia and Germany can Navigate Shifting Energy Geostrategy
Stewart Nixon* / Malte Küper in Policy Ideas
Malaysia and Germany, as constructive and reliable participants in globally interdependent energy (as well as trade and financial) markets, face an increasingly hostile, volatile, and uncertain environment surrounding energy choices.
The German Economic Institute (IW) and Frontier Economics are pleased to invite you to a rapporteur & stakeholder workshop on the Industrial Accelerator Act (IAA) in Brussels.
Universal entitlement, unequal provision: childcare in segregated German cities
Matthias Diermeier / Jan Engler* / Melinda Fremerey / Leon Wansleben* in Journal of Social Policy
One mechanism driving persistent inequalities in childcare provision, despite rising investments and a substantial expansion of childcare facilities, may consist in the locational choices of providers, who eschew poorer neighbourhoods.
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