Riccardo Faini CEIS Seminars

Lifetime Inequality and Redistribution in Germany
March, 20th 2020 (12:00-13:30)
Room A - 1st floor

Giacomo Corneo (Freie Universitat Berlin)

Riccardo Faini CEIS Seminars

We employ German social security records and a comprehensive microsimulation model to investigate lifetime income inequality and redistribution within cohorts, starting with those born in 1935. We document a secular rise of lifetime income inequality, both pre-fisc and post-fisc. Over entire life cycles, the German tax-transfer system is found to be progressive and generating substantial effects on the disposable incomes of the two extreme deciles of the lifetime income distribution. The overall lifetime tax-transfer-system is close to linear. Governmental lifetime income redistribution mechanically reduces lifetime inequality by more than a fifth; the lion’s share of this inequality reduction stems from the personal income tax. Differential mortality increases lifetime income inequality by just 4 %. We develop a money-metric welfare measure that takes the value of greater longevity into account. We find that differential mortality increases lifetime welfare inequality by a substantially larger amount.