Germany: Selected Issues
IMF Staff Country Reports, July 10, 2019
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- Germany: Selected Issues
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Bibliographic details
- Published: July 10, 2019
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498324632.002
Summary findings
- This Selected Issues paper explores wealth inequality and private savings in Germany.
- Trends in increasing corporate profits and gross savings have widened top income inequality, as corporations are typically owned by households in the top of the wealth distribution.
- The impact on income inequality is more pronounced in countries where the rise in profitability was a result of lower wage growth and labor income shares to start with, as was the case in Germany.
- The evidence strongly suggests this is not the case and underscores the important role of German business wealth concentration in this context.
- As high corporate savings and underlying profits largely reflect capital income accruing to wealthy households and increasingly retained in closely-held firms, the build-up of external imbalance has been accompanied by widening top income inequality, rising private savings and compressed consumption rates.
- The concentration of privately held and publicly listed firm ownership in the hands of industrial dynasties and institutional investors is especially prevalent in Germany, possibly reflecting distortions in firm entry, financing conditions and tax incentives.
Major themes and analysis
- Wealth inequality and private savings dynamics:
- Increasing corporate profits and gross savings linked to wider top income inequality.
- Capital income accruing to wealthy households is increasingly retained in closely-held firms, contributing to higher private savings and lower consumption rates.
- Role of labor income and profitability:
- The paper discusses how the effect on income inequality is larger when profitability rises stem from lower wage growth and reduced labor income shares, noting Germany as an illustrative case.
- However, the evidence referenced in the paper indicates that this simplistic attribution may not hold, pointing instead to concentrated business wealth ownership as a central factor.
- Ownership concentration and structural factors:
- High concentration of firm ownership among industrial dynasties and institutional investors in Germany.
- Possible underlying causes include distortions in firm entry, financing conditions, and tax incentives.
Subjects and keywords (as listed)
- Subjects: Corporate income tax, Income, Income distribution, Income inequality, National accounts, Private savings, Taxes
- Keywords: accelerated depreciation, Corporate income tax, CR, Eastern Europe, Europe, Global, Income, Income distribution, Income inequality, inequality loop, ISCR, labor tax wedge, net, Private savings, saving rate, social security contribution rate, wealth inequality
Content in this bundle
- Germany: Selected Issues; IMF Country Report No. 19/214; June 21, 2019