New Studies out now: What Drives Inequality in Germany?

In a two-part study commissioned by Forum New Economy, Charlotte Bartels and Carsten Schröder investigate the state of inequality and its drivers.




11. DECEMBER 2020



Part I and II of this multi-year research project were carried out by Charlotte Bartels and Carsten Schröder from DIW and are now published as Forum New Economy Basic Paper No. 2 and Forum New Economy Working paper No. 7

Part I Forum New Economy Basic Paper

“This paper has three principle aims. First, as there are many critical choices made when measuring inequality, this paper reviews the important methodological choices, including that of the reference unit (e.g., individual vs. households) and of the data source (e.g., administrative vs. survey data). Secondly, keeping in mind the first aim, the paper reviews the literature on income, consumption, and wealth inequalities. Thirdly, the paper uses an inter-temporally harmonized dataset, based on the German Income and Expenditure Survey (see Bönke et al., 2013), to provide a consistent time series of income, consumption, and wealth inequalities in Germany.”

Part II Forum New Economy Working Paper

“We quantify the contribution of rental income to pre- and post-government equivalent household income inequality and of housing wealth to net wealth inequality between 2002 and 2017 in Germany by means of a factor decomposition. Further, we differentiate by region types (urban vs. rural, large vs. small municipalities) and federal states. We find that housing wealth, housing ownership and rental income particularly increased in large municipalities and urban areas; that rental income explains an increasing share of income inequality; and that the wealth inequality contribution of primary residence has increased over time, while the contribution of other real estate has decreased. Finally, we find an increasing rent load for the second quintile and the top quintile of the income distribution.”



The rising gap between rich and poor has become a threat to social cohesion in most rich countries. To reverse this trend it will be crucial to better understand the importance of different drivers of income and wealth inequality.