IV. Contratos de ejecución instantánea y sucesiva

The distribution of income and wealth is not just a normative issue. Inequality and wealth concen- tration provides potential for significant obstacles for economic development. In the course of the global financial crisis and the publishing of Piketty’s (2014) Capital in the Twenty-First Century, the discussion on income and wealth concentration has been renewed. It is argued, that a concentration of wealth and income can hinder economic progress.

Economic inequality can be measured and expressed through various variables: there is labour and capital income, wealth, wages or more general the questions whether measured per person, on a household level, on annual base or regarding the entire life of a human being (i.e. see Battisti et al. (2016) for a brief overview and data related to Germany).

A strict separation, however, seems inappropriate, as there is mutual dependency. Whereas the accumulation of wealth is only possible if income flows deliver surplusses, higher income flows usually are supported by a certain amount of wealth. Wealth in this context not only contains the financial (asset) situation of an individual but also includes any kind of real asset and of course human capital. The stock of skills and knowledge, accumulated over time, allows an individual to step on a higher level of income, which then, in turn, results in higher wealth accumulation. Financial and real assets, in turn, allow postponing income streams to the future. Mutual dependency of income and wealth shows a reason and a necessity likewise for policy-makers - a reason for the self-reinforcing dynamics of inequality and the need to establish a suitable tax system and other distributional tools by the gov- ernment. Regarding recent developments (of the twenty-first century), discussions among economists, politicians and the general society have occurred and determined the political agenda (i.e. Fratzscher (2016), Peterson (2017), Atkinson (2015), Stiglitz (2013)).

When considering income inequality, Germany is ranked below OECD-average, showing higher

77_{Another possibility is to benefit from a general economic recovery and improving conditions of the economic envi-}

ronment. Deutsche Bundesbank (2017b, 39) has stated, that the decrease of German debt after 2010 (up to 2017) is due to business cycle recovery, large tax incomes, low interest rate payments and good labour market outlook.

levels of income inequality. Market incomes in Germany (before any distributional effects) exhibit a Gini of around 0.51 (2015), the OECD-average of just around 0.45 (2015) (OECD Statistics (2018a)). Figure 34 shows the trends for the German market and disposable incomes, expressed as Gini coefficients. The higher the value, the higher the degree of inequality. All values from 1990 to 2011 are based on the old definition, whereas values from 2012 to 2015 [and any following, O.Z.] base on the new income definition of the OECD: “Compared to previous terms of reference [the old OECD-definition, O.Z.], these [new values] include a more detailed breakdown of current transfers received and paid by households as well as a revised definition of household income, including the value of goods produced for own consumption as an element of self-employed income.” (for additional information please see OECD Statistics (2018a)).

Figure 34: (Gini Market Income and Disposable Income) 1990-2015. Source: OECD Statistics (2018a); own illustration.

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After having experienced a sharp increase in inequality in the 1990s from 0.43 (1990) to 0.50 (2004) for market incomes, the values have remained stable since then. Also, this trend is valid for disposable incomes (0.26 to 0.29 for 1990-2004). Fratzscher (2016) acknowledges the developments and relates

the discussion to the distribution policy of the government. Germany is among the countries with the highest degree of inequality of market incomes but is very successful in decreasing the level due to distribution policy. The necessity for high government activity is clearly subject to discussion but definitely uncovers a dysfunctional income distribution (Fratzscher (2016, p. 585)).

It is also evident for a lack of a suitable framework of regulatory policy. Fratzscher (2016) claims five parts in Germany to be re-shaped and re-organised: educational policy, family and gender policy, tax system, labour market policy and private precaution - more precisely, these parts should be re-designed and equipped with a higher degree of efficiency. It will then reduce the necessity for the government to intervene so that the benefits of a more solid public budget and higher (social) equality could be realised. From this point of view, (market) income inequality falters economic growth and productivity via an indirect channel. The higher the financial burden of distributional policy, the lower the potential for setting economic stimuli (i.e. investment in public goods). The “slower economic growth due to efforts in reducing inequality”- argument is shared by Conard (2016) and Watson (2015).

In addition to the common measures of inequality as mentioned above, different socio-economic positions have to be taken into account. Depending on the economy considered, there is a type of inequality arising from different perceptions of gender, race or personal characteristics. This type of inequality has been labelled as “existential” or “horizontal” inequality. When deriving implications upon income dispersions, the issue of “horizontal” inequality has to be kept in mind for the sake of completeness (Peterson (2017, p. 2 f.) quoting Therborn (2013)).

Besides internal inequality, which is inequality in an economy itself, there is external inequality, which is an unequal distribution of incomes among countries. Both problems influence the domestic level of inequality likewise. As the degree of global inequality is significantly larger than in any domestic economy, its relevance for the inequality issue is even more important (Peterson (2017, p. 4) quoting Milanovic (2011)). Global inequality determining paths of economic development can be linked to the factor endowment of a country’s early state. Engerman and Sokoloff (1994; 2005) show that North and South America, both equipped differently at their very beginnings, have then followed a process of economic divergence.

importance. Peterson (2017, pp. 13-15) states that countries exhibit higher rates of productivity if income inequality after taxes and transfers is low (disposable income). Stiglitz (2013) shares the opinion by emphasizing the savings effect of the wealthy cohort. Two arguments are presented for this channel. First, in relation to their income, wealthy people spend less money on consumption implying lower levels of aggregate demand for the economy, compared to a situation of a more equal distribution of income. Second, a more concentrated distribution might lead to economic inefficiencies and instabilities due to increased lobbyism by politicians, benefitting high-income recipients (who usually prefer less investment in public goods, i.e. infrastructure).

Another linkage is outlined by Ku and Salmon (2012), who emphasize a “discouragement effect”. Workers being confronted with an unequal income distribution become discouraged. The implied reduction in individual productivity then, in turn, leads to a reduction in aggregate productivity and economic growth over time (and can translate inequality into a long-run phenomenon if - from a behavioural perspective - no incentives are set to encourage workers improving their poor relative position). Regarding work effort workers not only respond to absolute returns but also to relative returns. According to Ku and Salmon (2012), individuals facing inequality on the job in terms of lesser rewards, respond by less job work effort (Ku and Salmon (2012, p. 47)). A possible counter effect (“encouragement effect”) - workers responding to inequality by working even harder - can be denied, according to the authors’ study. The “discouragement”-linkage has been exposed by studies before, varying in their explanatory power (i.e. Akerlof and Yellen (1990) and the “fair wage effort hypothesis”).

Brueckner and Lederman (2015) emphasize the circumstances for the inequality-productivity link- age. More precisely, there is a difference in the result, depending on the level of development of an economy. Brueckner and Lederman (2015) claim that for poor countries (low level of development) higher levels of inequality can be beneficial. Their estimates are linked to the investment and invest- ment in human capital channels but lack of causal explanation for the positive relationship of inequality and productivity for poor economies (expressed as low GDP per capita).

Gordon’s main focus is on headwinds #3-6 (#1-2 have been counted to the demand-side and are often associated with the reviving works of Larry Summers). Additionally, Gordon discusses globali-

sation and the ecological environment as possible bottlenecks for further (productivity) development. However, there is no explicit quantification of the effects “as the headwinds discussed above [demogra- phy, debt, inequality and education, O.Z.] are sufficient to validate the pessimistic forecasts contained in the 2012 paper” Gordon (2014, p. 15). Effects of globalisation are also channelled through the inequality-headwind and hard to be considered isolated.

A last headwind, Gordon names without further elaboration, is the medical system in the United States. There is a study for a hypothetical scenario of the US implementing a medical care system as Canada possesses. It calculates a huge bulk of resources saved, which could be used otherwise (in fact, $1 trn. is calculated by Cutler and Ly (2011) for this scenario) and additionally could raise life expectancy (Gordon (2014, p. 15)).