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The Distribution of Wealth inGermany, 1895 to 2018⇤
By THILO N. H. ALBERS, CHARLOTTE BARTELS
AND MORITZ SCHULARICK†
This paper presents the first comprehensive study of the long-run evolution of wealth in-equality in Germany. We combine tax data, surveys, and rich lists to study the distributionof wealth in Germany from 1895 to 2018. We show that in the long run the concentrationof wealth in the hands of the top-1% has fallen by half, from close to 50% in 1895 to lessthan 25% today. However, since reunification the fortunes of households in the upper halfof the wealth distribution and those in the lower half have diverged sharply. Householdsin the upper half of the distribution have doubled their wealth in real terms in the past25 years. By contrast, wealth of households in the bottom 50% has barely grown at all.As a result, the share of total wealth owned by the bottom 50% has nearly halved fromabove 5% to less than 3% today. The wealth gap between households in the bottom 50%and those in the upper half has widened dramatically. In 1993, the average wealth ofhouseholds in the top-10% was 50 times higher than of those in the bottom half. Today,households in the top-10% are 100 times richer. East Germany has witnessed the mostpronounced widening of wealth inequalities between the bottom half and the top. Capitalgains from rising equity prices at the top and middle-class gains in housing wealth wereof equal magnitude, but the boom in equity and house prices in the past decade has al-most entirely by-passed households in the bottom half of the population. We also discussthat official statistics underestimate German business and real estate wealth by substantialamounts. We present more accurate estimates showing that Germany is much richer thanofficial statistics suggest.
⇤Funded by the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation) under Ger-many’s Excellence Strategy – EXC2126/1–390838866.
†Schularick: ECONtribute, University of Bonn, [email protected]; Albers: Humboldt UniversityBerlin, [email protected]; Bartels: German Institute for Economic Research (DIW),[email protected]
About ECONtribute: Markets & Public Policy
ECONtribute: Markets & Public Policy is a joint initiative of the University ofBonn and the University of Cologne and funded as a Cluster of Excellence by the DeutscheForschungsgemeinschaft (DFG). It is the only Cluster in Germany in economics and neigh-bouring disciplines.
ECONtribute’s research focuses on markets at the interface between business, politics andsociety. The Cluster aims to advance a new paradigm for the analysis of market failure inlight of fundamental societal, technological and economic challenges, such as increasinginequality and political polarization or global financial crises. Against this background,ECONtribute develops a comprehensive and innovative approach that takes societal goalsbeyond economic efficiency and new ways of policy-making into account.
The Cluster Faculty consists of outstanding researchers from economics and neighbouringdisciplines, such as law, psychology, neuroscience and business administration. ECON-tribute forms an internationally leading research centre for economic research in the fieldof public policy.
About the Authors
Moritz Schularick is Professor of Economics at the University of Bonn and the Clusterof Excellence ECONtribute: Markets & Public Policy. He is also Director of the Macro-finance Lab Bonn, a Research Professor at New York University, and a Member of theBerlin-Brandenburg Academy of Sciences. In 2018, he received the Gossen-Prize of theVerein für Socialpolitik honoring German economists whose work has gained internationalrenown.
Thilo N. H. Albers is a postdoctoral researcher at the Economics Department, Hum-boldt University Berlin. He received his PhD from the London School of Economics andPolitical Science in 2018. His dissertation won the Gino Luzzatto Prize by the EuropeanHistorical Economics Society.
Charlotte Bartels is a postdoctoral researcher at the German Institute for EconomicResearch (DIW) and Visiting Associate Professor at City University New York (CUNY).She holds a PhD from Freie Universität Berlin. Her dissertation won the Roman HerzogAward for Social Market Economy Research and the Wolfgang-Ritter-Award.
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Summary
German wealth inequality over
the long run
This study presents the first comprehen-sive analysis of long-run wealth inequal-ity in Germany from 1895 until today.We harmonize and combine several datasources – wealth tax data, survey data,household balance sheets from national ac-counts and lists of large wealth holders –to compile an estimate of the long-run evo-lution of the top-1% wealth share in Ger-many that allows us to look at recent in-equality trends from a long-run perspec-tive. Measuring aggregate wealth and itsdistribution is particularly challenging in acountry like Germany whose 20th centuryhistory has been marked by two WorldWars and five different forms of govern-ment – the Kaiserreich, the Weimar Re-public, the Nazi Regime, the Federal Re-public and the German Democratic Re-public.
Top 1% and bottom 50% wealth share,Germany, 1895-2018
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The figure above shows that the concen-
tration of wealth in the hands of the top1% has fallen by half, from close to 50% in1895 to less than 25% today. Almost all ofthis decline occurred in the time span of ageneration between World War I and theearly 1950s. It has fluctuated around itspost-WWII level ever since.
The main reason for the pronounced de-cline in the interwar period is that thevalue of business wealth – the most impor-tant part of wealth of households at thevery top of the distribution – collapsed inthe Great Depression. A second importantfactor for the decline was the significantwealth tax that was levied in 1952 to sharethe financial burden of the war (“Laste-nausgleich”). This large wealth tax turnedGermany into one of the most egalitariancountries in the early phase of the post-war boom. War destructions in World WarII also affected wealth at the top, but thequantitative effect was smaller than thatof the other two factors.
Surging wealth polarization in
the unified Germany
Our second main contribution is to zoom inon the evolution of wealth inequality in theunified Germany. The central finding hereis that underneath the stability of the top-1% wealth share and the Gini-Coefficient,the polarization of wealth has increasedsubstantially in the past 25 years, driven
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Distribution of total wealth and growth, 1993-2018
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by diverging rates of wealth growth acrossthe population.
The upper half of the wealth distributionhas effectively doubled their wealth in thepast 25 years. By contrast, wealth in thebottom half of the population has barelygrown at all, resulting in a sizable polar-ization of economic fortunes and a widen-ing gap between the “haves” and the “have-nots” in the German population. In 1993,the average wealth of households in thetop-10% of the wealth distribution was 50times higher than in the bottom half. In2018, the gap has grown to 100 times.
Moreover, the share of total wealthowned by the bottom-50% has nearlyhalved from above 5% to less than 3%. The
polarization was particularly pronouncedin East Germany where fortunes at thetop tripled. In the West, average wealthof households in the lower half declinedslightly in real terms since 1993.
So far, this considerable dispersion ofwealth was missed in summary indicatorsof inequality, because two different trendsoff-set each other. On the one hand, busi-ness wealth of households at the very top ofthe distribution doubled since 1993, withrising equity valuations playing an impor-tant role. Yet on the other hand, thanksto rising house prices, middle-class house-holds also made substantial gains in hous-ing wealth. At around 2 trillion Euros,they have been of similar magnitude as the
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business wealth gains at top. However,the asset price boom in housing and eq-uity markets has almost entirely bypassedhouseholds in the bottom 50% of the distri-bution resulting in a growing gap betweenthe bottom and top of the population.
Wealth growth in East and West,1993-2018
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New estimates for household
wealth
Our third main contribution is to presentnew series for the aggregate level and thecomposition of household wealth in Ger-many from the Kaiserreich until today.While our definitions and methods to es-timate aggregate private household wealthare often in line with Piketty and Zucman(2014), we also undertake several impor-tant modifications.
Most importantly, we provide alterna-tive estimates for the trajectory of aggre-gate wealth since reunification. In par-ticular, our new estimates for business
wealth represent an improvement over ex-isting series. While the value of pub-licly listed companies is accurately cap-tured in existing statistics, the value ofGermany’s large number of private lim-ited companies and quasi-corporations rep-resents the main challenge. The statis-tical office (Destatis) knows about theseshortcomings but has not yet embarked ona thorough revision of household balancesheets. To arrive at a new and better es-timate, we capitalize the earnings streamsfrom private limited companies and quasi-corporations using corporate and incometax data. For the capitalization method,we follow the U.S. approach to use theearnings multiples and dividend-price ra-tios of publicly listed companies, applyinga generous liquidity and risk discount.
We estimate that by international stan-dards, official statistics undervalue Ger-man business wealth by close to 2 trillionEuros. Real estate values are also underes-timated as current statistics are (too) slowto reflect market prices. We estimate thatthe total value of German business wealthamounts to about 4 trillion Euros in 2018,and real estate wealth to more than 9 tril-lion. Our corrected wealth-to-income ratiois about 120% higher relative to GDP. Putdifferently, Germany is much richer thanofficial statistics make us believe.
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