Charlotte Bartels: How the Wealth Simulator Works
Why it is not enough to take something away from the rich to substantially reduce wealth inequality.
PUBLISHED13. NOVEMBER 2023
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.