Forum Study: Inequality in Germany – Policy Measures to Reverse the Trend
- From Xhulia Likaj
- Reading duration 2 min
A new Forum New Economy Working Paper reviews the trends and drivers of income and wealth inequality in Germany, and possible policy options.
Motivated by a context of still very divergent views on the extent of and possible instruments against inequality, the Forum New Economy engaged in a multi-year project that sought to disentangle the debate around inequality in Germany and clear it up from clichés. Inequality in Germany: Policy measures to reverse the trend by Stefan Bach, Markus M. Grabka und Marc C. Adam (currently only available in German) is the third part of a series of sequential studies on inequality commissioned by the Forum to provide answers to this debate and reflect the current state of empirical research. The first two studies dealt respectively with evaluating which methods are suitable to measure inequality (Bartels & Schroeder 2020a) and its decomposition by factor components (Bartels & Schroeder 2020b).
This third part is a first attempt to estimate which measures are fundamentally suitable for reducing inequality on the basis of an updated and expanded classification of the drivers of inequality. For income, a rough hierarchy of possible measures was made according to their relative effect on distribution. For wealth inequality, estimates were made of the effect of a wealth tax or levy and the introduction of a basic inheritance. The authors conclude that for income, the focus should be on labour market reforms, reform of the tax and transfer system and taxation of capital income or wealth in order to address the underlying inequality that contributes significantly to the increase in net household income inequality. Addressing wealth inequality would involve, on the one hand, promoting private wealth accumulation (e.g. through the promotion of home ownership or a more effective supplementary pension system) or achieving some redistribution through taxation of high incomes and wealth. Relevant options include a reform of the inheritance tax; the additional revenue could be used to finance a universal capital endowment.