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Speaker:
Holger Lüthen (FU Berlin / DIW)

Abstract: We supplement German social security records with the SOEP 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 than lifetime income inequality.

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