The empirical studies assembled in this dissertation investigate pretax income inequality along three fault lines in Germany: inequality between different groups along the German income distribution, regional inequality between East and West German residents and gender earnings inequality. The last chapter turns to feasible policy solutions.
In Chapter 1, “Distributional National Accounts (DINA) for Germany, 1992-2016”, my co-authors, Stefan Bach and Charlotte Bartels, and I investigate inequality dynamics between different income groups – from the bottom to the very top – of the German income distribution from 1992 to 2016. Our analysis underlines the importance of firm structures for the level of top income concentration. The top 0.1% receives approx. 6% of national income, which is comparable to the United States and twice as high as in France. Due to Germany’s country-specific predominance of closely held partnerships, highly concentrated business profits can translate more directly into personal business incomes.
Chapter 2 “When Capitalism Takes over Socialism: The Lasting Economic Divide Between East and West Germany” turns to regional inequality. My co-author, Charlotte Bartels, and I estimate these differences along the regional income and wealth distributions from 1992 to 2016 and explore possible causes of the lasting divide. We find that East German residents still earn and own a fraction of their West German counterparts. This gap widens towards the top of the distribution, predominantly due to lower partnership and corporate incomes among East Germans.
Chapter 3, “The Long Way to Gender Equality: Gender Pay Differences in Germany, 1871-2021”, highlights another persistent fault line in German society: Gender earnings inequality. I provide the first long-run time series of the gender earnings ratio for the full-time employed workforce from 1871 to 2021, discuss possible drivers of the observed dynamics and compare the German path with the U.S. and Swedish cases. In Germany, the gender earnings ratio increased from about 46% in 1913 to 58% in 1937. Similar increases were visible in Sweden, and the U.S. Germany’s focus on on-the-job vocational training may have slowed educational convergence compared to the United States. Germany’s similar earnings ratio increase is better explained by women’s migration from low-paid agriculture to higher-paid white-collar jobs.
Chapter 4, “Revenue Effects of the Global Minimum Tax under Pillar Two”, turns to adequate policy action. Increased possibilities to shift profits to low-tax jurisdictions have raised fairness concerns for national tax systems and decreased national tax revenues. My co-authors, Mona Baraké, Paul-Emmanuel Chouc and Gabriel Zucman, and I explore the revenue potential of a global minimum tax of 15% on corporate profits. This policy was agreed upon among 137 countries and jurisdictions under the umbrella of the OECD in October 2021. We simulate the revenue effects of the global minimum tax. Our analysis accentuates the significance of policy design: We find that the distribution of revenues depends on which country has the priority to collect the top-up tax.
