Inequality in Germany Increased between 1998 and 2016 Especially within Cities and Municipalities, Not across Regions

Income inequality has increased in Germany between 1998 and 2016, according to tax data analyzed by the ifo Institute and EconPol Europe. This analysis shows that in 1998, the richest 10 percent of taxpayers earned 33.8 percent of total income. In 2016, that figure rose to 37.2 percent. “Unfortunately, more recent figures aren’t available,” says ifo researcher Andreas Peichl. Over the same period, the poorest 50 percent’s share of income fell from 19.3 percent to 15.9 percent. “Differences in income within municipalities account for more than 95 percent of national inequality. So it’s not that regions have diverged, but rather that inequality within municipalities has increased,” Peichl says.

On average, incomes in municipalities in western Germany are less equally distributed than in eastern Germany. Moreover, there are also differences between different cities. Inequality is most pronounced in municipalities in Baden-Württemberg and least pronounced in Thuringia. For example, in Erfurt (TH), the top 10 percent of taxpayers have a 35 percent share of total income. In Heilbronn (BW), by contrast, the top 10 percent earned almost 60 percent of total income. “Compared to other countries, inequality between regions in Germany is currently rather moderate, but the degree of inequality within cities and municipalities is growing,” says ifo researcher Paul Schüle.
 
Peichl and Schüle explain that, from this perspective, government measures such as fiscal equalization between federal states or regional policy aimed at strengthening structurally weak regions would not have a significant impact on income inequality. This is because such measures would directly affect only the very small proportion of income inequality in Germany that results from income differences between regions. To ensure that gross incomes in Germany do not diverge further, policymakers ought to consider instruments other than location-based measures.

Questions can be directed to: Prof. Andreas Peichl, 0049 / 89 9224 1225, Peichl@ifo.de; Paul Schüle, 0049 / 89 9224 1440, Schuele@ifo.de