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Inheritance and coronavirus are increasing wealth inequality in Germany

Inheritance and coronavirus are increasing wealth inequality in Germany

Inheritance and coronavirus are increasing wealth inequality in Germany

A new study has found that inheritance is having a detrimental effect on wealth equality in Germany. Experts fear that coronavirus will further exacerbate the issue, as low-income households are being hit the hardest.

A costly inheritance

A study by the German Institute for Economic Research (DIW) has found that just under half of the entire value of inheritance and posthumous gifts in Germany goes to the wealthiest 10 percent of recipients, while the rest is shared amongst the remaining 90 percent. As Markus Grabka from the DIW said, this imbalance “exacerbates absolute wealth inequality” in Germany. The study also found that, between 2002 and 2017, the wealthiest 20 percent of Germans received the biggest inheritances, whereas only two percent of the poorest 20 percent received any inheritance at all.

Usually, inheritance and posthumous gifts or donations would serve to reduce relative inequality, since the wealth is distributed amongst several people. However, Grabka explains that “at the same time, the gap in wealth between those who inherit and those who miss out is growing ever greater.” According to Grabka, this is down to social reasons: “Children who grew up in a household that already had a higher level of income and wealth will later receive on average higher inheritances and gifts.”

The study also found regional inheritance inequalities. People living in western Germany inherited 92.000 euros on average over the course of the study, while people living in eastern Germany only received 52.000 euros. In the case of posthumous gifts and donations, beneficiaries in the west received around 94.000 on average, compared to 58.000 euros in the east.

Germans have a lot to give

The study, which was also undertaken by the University of Vechta and the German Centre for Aging (DZA), surveyed 15.000 households and found that, between 2002 and 2017, around ten percent of all adults inherited or received a posthumous gift. Adjusted for inflation, each receipt inherited 85.000 euros or was gifted 89.000 euros on average. This amounted to a 20 percent increase compared to the previous period (1986-2001).

One of the study’s co-authors, Claudia Vogel from the DZA, has called for politicians to introduce measures preventing inheritance from increasing wealth inequality. Vogel suggested “preventing the inheritance of large fortunes from being split up over the ten-year period," since tax exemptions can be used every ten years.

The effect of coronavirus

Just as it has affected everything else, experts fear that the coronavirus pandemic could also have a detrimental effect on wealth equality in Germany. The Hans Böckler Foundation surveyed 6.000 people and found that 48 percent of people who earned a monthly net income of 900 euros or less suffered financial losses between April and the end of June 2020.

For those who earned a monthly salary of 4.500 euros, only 27 percent reported losses. The study found that low-income and temporary workers, those in marginal employment, and people from a migration background are at the highest risk of financial loss during the crisis.

William Nehra

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William Nehra

William studied a masters in Classics at the University of Amsterdam. He is a big fan of Ancient History and football, particularly his beloved Watford FC.

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