: 6. Inequality: How can the database be improved?

The Gini coefficient of need weighted household incomes is generally used as a measure of income inequality. The empirical basis for this in Germany is the Socioeconomic Panel (SOEP) data. The problem is that in surveys the top-earners tend to be under-represented. The result is that the extent of inequality at the upper end of the distribution is underestimated – and with it income inequality as a whole.

Evaluations of official income tax statistics are suitable for more precise estimates. However, since the introduction of flatrate tax in 2009, capital incomes have no longer been systematically recorded, and they are extremely significant, especially for the livelihood of top earners. A return to what is known as synthetic income taxation, whereby the personal tax rate applies to capital income, would also represent considerable progress in terms of the data (Behringer et al. 2014).

Recording distribution of wealth in Germany is likewise difficult. As wealth is typically very much more unequally distributed than income, it would be all the more important to include large properties in the calculations. However, superrich households rarely take part in population surveys, or even not at all (Westermeier and Grabka 2015). For instance, the richest household in the SOEP owns net, i.e. after deduction of debts, “only” just under 50 million euros. Multimillionaires and billionaires, who have huge assets despite their relatively small number, are seriously under-represented. Another obstacle is the valuation of assets in line with their market value by those surveyed. The reintroduction of a wealth tax – which although a component of tax law has not been levied in Germany since 1997 – would markedly facilitate reliable measurements (Behringer et al. 2014).
 

References

Behringer, J., Theobald, T., van Treeck, T. 2014. Einkommens- und Vermögensverteilung in Deutschland – Eine makroökonomische Sicht (pdf), IMK Report Nr. 99.

Westermeier, C., Grabka, M. M. 2015. Große statistische Unsicherheit beim Anteil der Top-Vermögenden in Deutschland, DIW Wochenbericht Nr. 7/2015: 123-133.