Giacomo Corneo

Lifetime Income Inequality and Redistribution

This paper offers the first analysis of actual lifetime income inequality and redistribution over a large number of cohorts in a major economy, Germany. Starting with the 1935 cohort, we document a secular rise of lifetime income inequality, both pre-fisc and post-fisc. The German tax-transfer system is linearly progressive in terms of lifetime income and exerts a substantial impact on the disposable incomes of the top and bottom decile. Governmental income redistribution mechanically reduces lifetime inequality by one fifth to one fourth; the lion’s share of this reduction is effectuated by the personal income tax. Lifetime inequality in terms of equivalized income has been contained by a reduced propensity of individuals in the bottom quartile to form a family. Differential mortality is sizable but eliminating it would not markedly reduce lifetime income inequality. We develop a theoretically founded money-metric welfare measure that takes the value of greater longevity into account. We find that differential mortality is a major driver of lifetime welfare inequality.

FU contact: giacomo.corneo@fu-berlin.de