Inequality has been back on the agenda in western countries at least since Piketty’s 2013 book “Capital in the 21st century”. However, many experts in Germany – including a majority on the German council of economic advisors (see Jahresgutachten 2017) – believe that concerns around German inequality are exaggerated. Now, three German economists – led by University of Bonn Professor and INET fellow, Moritz Schularick, have combined tax data, surveys and lists of the rich to give the first comprehensive account of the long-run evolution of wealth inequality in Germany.
The time period of the study is longer than any previous study on German inequality. The difficulty of compiling the dataset arises from Germany’s history: the country had five different forms of government over the course of the 20th century. The long-run approach allows the authors to observe that the wealth share of the top 1% fell dramatically between the first world war and the 1950s, with the fall in wealth concentration at the very top mainly the result of a collapse of business wealth during the Great Depression and the wealth tax levied in 1952 (”Lastenausgleich”).
One improvement the new study has over earlier studies, such as that undertaken by Fuchs-Schündeln et al. (2010), is that it does not exclusively rely on survey data, which tends to underestimate wealth inequality, as the wealthiest people and households are rarely included in their samples. More importantly, combining tax data, surveys and rich lists allows the authors to estimate wealth share, an approach popularized by Thomas Piketty (2013). Measuring the share of wealth held by differing parts of the population has important benefits over the Gini coefficient, which has faced severe critique by renowned scholars (see – here).
The difference between earlier studies using the Gini coefficient and this new study can be seen most clearly when the authors look at what has happened since German unification. While the Gini coefficient and the share of wealth accounted for by the top 1% has changed little since 1990, Albers, Bartels and Schularick show that beneath this apparent stability there have been very different rates of wealth accumulation across the population. For example, in 1993 the wealthiest 10% possessed “only” 50 times more than the poorest 50%. But by 2018, the richest 10% possessed 100 times more than the bottom 50%. Indeed, the wealth of the bottom 50% seems to have actually fallen substantially. This development has been most dramatic in East Germany, where the wealth of the top 10% tripled over this period.
Overall, the study shows that the polarization of wealth has increased significantly over the past 25 years. There is a widening gap between the “haves” and the “have-nots” in Germany, as the upper half has effectively doubled their wealth, while the bottom 50% has not experienced any significant increases in theirs.
For the full study see – here.