Charlotte Bartels: How the Wealth Simulator Works

Last Friday, our wealth simulator for Germany was launched, which we developed together with a group of scientists led by Timm Bönke and Charlotte Bartels from the DIW Berlin. The simulator provides answers as to which instrument would contribute to a fairer distribution of wealth in Germany and to what extent.

In this video, Charlotte Bartels comments on the lessons that can be learnt from the simulator – and why it is not enough to simply tax the rich more to reduce inequality.

Charlotte Bartels provided a more detailed explanation of this in her presentation last Friday (the slides are available for download under this article). According to the simulation results presented, revenue-side instruments such as the introduction of a wealth or inheritance tax have relatively little effect on wealth shares, while expenditure-side instruments such as a basic inheritance have a stronger effect. There are two main reasons for this. Firstly, the current distribution of wealth, with the bottom 50% owning almost nothing, means that measures that promote wealth accumulation can have a major impact. Secondly, the simulation comes with number of assumptions and data limitations. For example, large gifts and inheritances are under-represented. In addition, business assets cannot be included as the data is either not available or legal data protection requirements stand in the way. In addition, the sample focuses on 20-60 year olds in order to better simulate the dynamics of wealth accumulation.

In her presentation, Charlotte Bartels emphasised that her findings should not be interpreted as an either-or proposition. For example, if the current statutory exemptions for business wealth were to be abolished, an inheritance tax could certainly be an important instrument for financing a basic inheritance. However, the simulator shows that the isolated (ceteris paribus) effect of an inheritance or wealth tax on the development of wealth inequality is only limited.