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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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Analysis of the party programs and outlook for the coming legislative period
Martin Beznoska / Tobias Hentze IW-Policy Paper No. 19 19. September 2021

Income tax policy in the federal election campaign

Income tax policy plays a relevant role in the election programs for the German federal election 2021. According to the election programs, basically all parties are aiming for relief for small and medium incomes and for households with children.

IW

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An Estimate of the Potential of Inheritance Tax to Relieve the Labor Factor
Martin Beznoska / Tobias Hentze IW-Policy Paper No. 18 14. September 2021

An Estimate of the Potential of Inheritance Tax to Relieve the Labor Factor

In der politischen Debatte wird teilweise argumentiert, dass die Erbschaftsteuer die bessere Vermögensteuer sei.

IW

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Maximilian Stockhausen in Journal of Economic Inequality External Publication 17. August 2021

Like father, like son?: A comparison of absolute and relative intergenerational labour income mobility in Germany and the US

Are children better off than their parents? This highly debated question in politics and economics is investigated by analysing the trends in absolute and relative intergenerational labour income mobility for Germany and the US.

IW

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Measuring the solidarity principle in Germany’s statutory health insurance system
Martin Beznoska / Jochen Pimpertz / Maximilian Stockhausen IW-Analyse No. 143 13. July 2021

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.

IW

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Martin Beznoska

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Head of the Research Unit Public Finance, Social Security Systems, Income and Wealth Distribution

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Christoph Schröder

Senior Researcher for Income Policy, Wages and Working Time Policy

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Dr. Ruth Maria Schüler

Economist for social security systems and income and wealth distribution

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Dr. Maximilian Stockhausen

Economist for Income and Wealth Distribution

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Analysis of the party programs and outlook for the coming legislative period
IW-Policy Paper No. 19 19. September 2021

Income tax policy in the federal election campaign

Martin Beznoska / Tobias Hentze

Income tax policy plays a relevant role in the election programs for the German federal election 2021. According to the election programs, basically all parties are aiming for relief for small and medium incomes and for households with children.

IW

Read study
Acceptance of Parliamentary Procedures in the Light of Individual Problem Perception
IW-Trends No. 3 15. September 2021

Acceptance of Parliamentary Procedures in the Light of Individual Problem Perception

Matthias Diermeier / Judith Niehues

A lively democracy thrives on the struggle between different interest groups for majority opinion on specific issues. Though the institutionalised process of balancing interests and hearing opposing points of view takes time, acceptance of these parliamentary procedures is essential for the functioning of our pluralistic democracy.

IW

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An Estimate of the Potential of Inheritance Tax to Relieve the Labor Factor
IW-Policy Paper No. 18 14. September 2021

An Estimate of the Potential of Inheritance Tax to Relieve the Labor Factor

Martin Beznoska / Tobias Hentze

In der politischen Debatte wird teilweise argumentiert, dass die Erbschaftsteuer die bessere Vermögensteuer sei.

IW

Read study
Hardly any scope for public spending in the new legislative period
IW-Report No. 33 3. September 2021

Desire and reality: Hardly any scope for public spending in the new legislative period

Matthias Diermeier / Michael Hüther / Thomas Obst

The 2021 election campaign for the German Bundestag reveals various demands on the federal budget over the next years. In the coming legislative period, for example, the federal budget may have to finance the "mothers' pension", take over the EEG levy, compensate for an increase in the social security contribution rate above the predefined threshold of 40 per cent, forego the revenues from the remaining "solidarity surcharge" and shoulder a higher defence budget. Some potential coalition partners, however, reject a reform of the debt brake and at the same time even promise significant tax cuts.

IW

Read study
A comparison of absolute and relative intergenerational labour income mobility in Germany and the US
External Publication 17. August 2021

Like father, like son?: A comparison of absolute and relative intergenerational labour income mobility in Germany and the US

Maximilian Stockhausen in Journal of Economic Inequality

Are children better off than their parents? This highly debated question in politics and economics is investigated by analysing the trends in absolute and relative intergenerational labour income mobility for Germany and the US.

IW

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