Inequality and the Financial System— The Case of Germany

Daniel Detzer

Abstract


Income inequality is rising in Germany. This is true for both
functional as well as personal income distribution. After reunification
in 1990, a general increase in inequality can be observed. This trend
becomes particularly pronounced in the 2000s. In the literature on
financialisation a link between the developments in the financial
sector, the financing behaviour of firms, and income distribution is
established. Also, in the varieties of capitalism literature a
connection between the prevailing institutions, among them the financial
institutions, and the tendency of an economy towards higher or lower
inequality is made. This study attempts to investigate if changes in the
financial sphere may have caused the higher inequality in Germany. There
are different ways in which the financial sector could have contributed
to the increased inequality. Growth of the financial sector or large
increases in incomes paid in this sector could lead to higher inequality
directly. Alternatively, different behaviour of financial institutions
and new financial actors could affect distribution in the non-financial
sector so that the financial sector indirectly affects
inequality.

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DOI: https://doi.org/10.30541/v54i4I-IIpp.585-608

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