Social Spending Generosity and Income Inequality: A Dynamic Panel Approach

This paper explores if more generous social spending polices in fact lead to less income inequality, or if redistributive outcomes are offset by behavioral disincentive effects. To account for the inherent endogeneity of social policies with regard to inequality levels, I apply the System GMM estimator and use the presumably random incidence of certain diseases as instruments for social spending levels. The regression results suggest that more social spending effectively reduces inequality levels. The result is robust with respect to the instrument count and different data restrictions. Looking at the structure of benefits, particularly unemployment benefits and public pensions are responsible for the inequality reducing impact. More targeted benefits, however, do not significantly reduce income inequality. Rather, their positive effect on pre-government income inequality hints at substantial disincentive effects.social benefits, redistribution, income inequality, System GMM

Social Spending Generosity and Income Inequality: A Dynamic Panel Approach

This paper explores whether more generous social spending polices in fact lead to less income inequality, or if redistributive outcomes are offset by behavioral disincentive effects. To account for the inherent endogeneity of social policies with regard to inequality levels, I apply the System GMM estimator and use the presumably random incidence of certain diseases as instruments for social spending levels. The regression results suggest that more social spending effectively reduces inequality levels. The result is robust with respect to the instrument count and different data restrictions. Looking at the structure of benefits, particularly unemployment benefits and public pensions are responsible for the inequality reducing impact. More targeted benefits, however, do not significantly reduce income inequality. Rather, their positive effect on pre-government income inequality hints at substantial disinctive effects.Social Benefits, Redistribution, Income Inequality, System GMM

Lower and Upper Bounds of Unfair Inequality: Theory and Evidence for Germany and the US

Previous estimates of unfair inequality of opportunity (IOp) are only lower bounds because of the unobservability of the full set of endowed circumstances beyond the sphere of individual responsibility. In this paper, we suggest a new estimator based on a fixed effects panel model which additionally allows identifying an upper bound. We illustrate our approach by comparing Germany and the US based on harmonized micro data. We find significant and robust differences between lower and upper bound estimates - both for gross and net earnings based either on periodical or permanent income - for both countries. We discuss the cross-country differences and similarities in IOp in the light of differences in social mobility and persistence.Equality of opportunity, fairness, redistribution, wage inequality

Lower and Upper Bounds of Unfair Inequality: Theory and Evidence for Germany and the US

Previous estimates of unfair inequality of opportunity (IOp) are only lower bounds because of the unobservability of the full set of endowed circumstances beyond the sphere of individual responsibility. In this paper, we suggest a new estimator based on a fixed effects panel model which additionally allows identifying an upper bound. We illustrate our approach by comparing Germany and the US based on harmonized micro data. We find significant and robust differences between lower and upper bound estimates – both for gross and net earnings based either on periodical or permanent income – for both countries. We discuss the cross-country differences and similarities in IOp in the light of di¤erences in social mobility and persistence.redistribution, fairness, equality of opportunity, wage inequality

The middle class in Germany: Diverse and stable

Die Mittelschicht steht häufig im Zentrum von Verteilungsanalysen. Es besteht allerdings keine eindeutige Abgrenzung dieser Einkommensgruppe. Zudem gibt es unterschiedliche Befunde hinsichtlich ihrer langfristigen Entwicklung. Gemäß der Abgrenzung des Instituts der deutschen Wirtschaft Köln (IW Köln) gehörte ein Alleinlebender im Jahr 2014 zur (Einkommens-)Mittelschicht im engen Sinn, wenn er über ein monatliches Nettoeinkommen zwischen 1.410 und 2.640 Euro verfügte. Für eine vierköpfige Familie liegen die Einkommensgrenzen bei 2.950 und 5.540 Euro. Unabhängig von der Abgrenzung stellt die Einkommensmittelschicht die mit Abstand größte Bevölkerungsgruppe in Deutschland. Auf Basis aktueller Daten der SOEP-Welle 2015 und der Definition des IW Köln gehört ihr etwa jeder Zweite an. Dies hat sich seit der Wiedervereinigung nicht wesentlich geändert. Die Entwicklung seit 1991 kann in drei Phasen eingeteilt werden: Zunächst stieg der Anteil der Mittelschicht im Zuge des ostdeutschen Aufholprozesses etwas an, bevor er von seinem temporären Höchstpunkt von knapp 55 Prozent im Jahr 1997 auf rund 50 Prozent bis 2005 zurückging. Abgesehen von dem Einfluss einer Stichprobenänderung im Jahr 2013 hat sich das Schichtgefüge seither nur noch unwesentlich verändert. Die Mittelschicht in Deutschland ist stabil.Although the middle class is frequently at the centre of distribution analyses, there is no precise definition of this income group. Findings as to its long-term development have, moreover, varied. As defined by the Cologne Institute for Economic Research (IW), a person living alone in 2014 was considered middle class in the narrow sense of the word if he or she had a monthly net disposable income between 1,410 and 2,640 euros. For a family of four the income limits were 2,950 and 5,540 euros. However defined, the middle class as an income group represents by far the largest section of the population in Germany. Based on current data from the 2015 wave of the Socio-Economic Panel (SOEP) and applying the IW definition, approximately every second person is a member of the middle class, a figure which has not changed fundamentally since German reunification. Developments since 1991 can be divided into three phases. First the middle class grew slightly as a proportion of the total population as the formerly communist east of the country caught up economically. From a peak of almost 55 per cent in 1997 it then declined to around 50 per cent in 2005. Apart from the influence of a change in the sampling procedure in 2013 the country's class structure has changed but little since then. There is certainly no evidence of the middle class continuously eroding at the edges. The present analysis reveals that the boundary between the middle and lower classes does not run along the so-called 'collar line'. Skilled blue-collar workers are highly likely to belong to the narrowly-defined middle class, as are trained white-collar workers. The self-employed, civil servants at management level and white-collar workers in highly-skilled or managerial positions frequently qualify as at least upper middle class and thus belong to the richest quintile of society

Subjektive Ungleichheitswahrnehmung und Umverteilungspräferenzen: Ein internationaler Vergleich

Die Bewertung von Einkommensungleichheit und die damit einhergehenden Umverteilungspräferenzen spielen eine entscheidende Rolle für die Gestaltung von Steuer- und Transfersystemen. Deutschland und die Schweiz haben zwar eine sehr ähnliche Einkommensverteilung. Es herrschen jedoch sehr unterschiedliche Meinungen darüber vor, wie kritisch die Einkommensdifferenzen beurteilt werden. Dies ist wenig überraschend, da es im Ländervergleich nahezu keinen Zusammenhang zwischen der tatsächlichen Verteilung der Einkommen und der subjektiven Bewertung der Einkommensunterschiede gibt. Ein wesentlich besserer Erklärungsfaktor für die Bewertung der Verteilung ist die subjektive Einschätzung der Ungleichheit innerhalb einer Gesellschaft. Ebenso werden auch die Umverteilungspräferenzen nicht durch die tatsächliche Verteilung, sondern vorwiegend durch die wahrgenommene Ungleichheit beeinflusst

Income Inequality, Inequality of Opportunity and Redistributive Policies

Over the last two decades, income inequality has increased in most developed welfare states. Therefore, redistributive policies are high on the political agenda of many countries. From a policy perspective, the correct empirical assessment of the redistributive effects of taxes and benefits is important to develop a well-designed redistributive policy mix. This thesis contributes to the understanding and measurement of redistribution by examining redistributive policies and income inequality and their interdependencies. The first empirical analysis explores the size and structure of effective redistribution in a broad sample of European welfare states. Besides answering the question of how different components of the tax and transfer system contribute to disposable income inequality, it also investigates whether the findings are sensitive to the underlying measurement method. Chapter 3 presents two detailed case studies of Germany and the United Kingdom and examines whether the structure of fiscal policies has changed over the last two decades. The analysis provides a comprehensive dynamic analysis of effective progressivity and redistribution by including all major fiscal elements: direct taxation, pay roll taxes, indirect taxes and benefits. Chapter 4 focuses on the identification of the causal effect of redistributive spending policies on income inequality by using a dynamic panel approach and some exogenous variation in social spending levels as an instrument. In contrast to the previous chapters, it explicitly discusses possible second-order effects of redistributive policies. Chapter 5 introduces the concept of inequality of opportunity instead of the traditional inequality of outcome approach. Given that previous estimates of unfair inequality could only provide lower bounds, the study suggests a new panel estimator which additionally allows identifying an upper bound of inequality of opportunity. The approach is illustrated by comparing Germany and the United States based on harmonized micro data. Overall, the book shows that tax benefit systems substantially reduce income inequality in all EU member states, with distinct redistributive capacities of different welfare state instruments. The amount of effective redistribution is significantly reduced when considering indirect taxes and second-order effects. Finally, while tax benefit systems equalize outcomes, they do not reveal a differential impact on unequal opportunities

The Redistributive Effects of Tax Benefit Systems in the Enlarged EU

How do different components of the tax and transfer systems affect disposable income inequality? This paper explores the redistributive effects of different tax benefit instruments in the enlarged EU based on two approaches. Inequality analysis based on the standard approach suggests that benefits are the most important factor reducing inequality in the majority of countries. The factor source decomposition approach, however, suggests that benefits play a negligible role and sometimes even contribute slightly positive to inequality. On the contrary, here taxes and social contributions are by far the most important contributors to income inequality reduction. We explain these partly contradictory results with the different normative focus of the two approaches and show that benefits have other aims than redistribution. Finally, our country clustering shows that the Eastern European countries do not form a distinguished group. The Central Eastern European countries group together with the Continental European countries and the Baltic States show similarities with some Southern European countries.inequality, redistribution, decomposition, tax benefit systems

Die Auswirkungen von Niedrigzinsen und unkonventionellen geldpolitischen Maßnahmen auf die Vermögensverteilung

Die krisenhaften Entwicklungen seit dem Jahr 2008 haben es für die großen Zentralbanken notwendig gemacht, ihre Leitzinsen auf nahezu Null zu senken. Gleichzeitig bekunden die Zentralbanken, dass sie die Zinsen noch für eine ausgedehnte Zeit niedrig halten werden. In einem solchen Umfeld von niedrigen Zinsen auf Spareinlagen und boomenden Vermögenspreisen stellt sich zunehmend die Frage, welche Umverteilungseffekte hieraus resultieren. Um dieser Frage nachzugehen, wurden Daten aus dem Household Finance and Consumption Survey für Deutschland aus-gewertet. Es zeigt sich, dass weniger die boomenden Aktienkurse und Immobilienpreise, sondern die niedrigen Zinsen auf Spareinlagen und Krediten eine umverteilende Wirkung hatten. So zeigt sich bei jungen Haushalten, die eine Immobilie über eine Hypothek finanzieren und die über wenige Spareinlagen verfügen, dass die Schuldendiensterleichterung den Verlust an Zinserträgen überkompensiert. Bei den älteren Haushalten überwiegt jedoch der Verlust an Zinserträgen, da diese demografische Gruppe tendenziell über einen hohen Anteil an Spareinlagen und nur geringe Schulden verfügt. Auch wenn sich keine Zunahme an Ungleichheit zeigt, so hat ein länger anhaltendes Niedrigzinsumfeld negative Auswirkungen für die Altersvorsorge. Dies ist vor allem vor dem Hintergrund zu sehen, dass die Haushalte hohe Anteile an verzinslichen Spareinlagen halten und nur einen geringen Aktienanteil aufweisen

Bounds of unfair inequality of opportunity: Theory and evidence for Germany and the US

Previous estimates of inequality of opportunity (IOp) are lower bounds because of the unobservability of the full set of endowed characteristics beyond the sphere of individual responsibility. Knowing the true size of unfair IOp, however, is important for the acceptance of (some) inequality and the design of redistributive policies as underestimating the true amount of IOp might lead to too little redistribution. This paper is the first to suggest an upper bound estimator. We illustrate our approach by comparing Germany and the US based on harmonized micro data. We find significant, sizeable and robust differences between lower and upper bound estimates - both for gross and net earnings based on either periodical or permanent income - for both countries. We discuss the cross-country differences and (surprising) similarities in IOp in the light of differences in social mobility and persistence