Government Borrowing and the Rise of the Super-Rich in Germany, 1980-2019

This paper explores the impact of sovereign debt on the income share of the top one percent in Germany from 1980 to 2019. Central to this study is the classical political economy argument that public debt is largely owned by the wealthy, who receive interest payments on sovereign bonds, while the tax burden of these payments falls on the entire population. Hence, public indebtedness results in a redistribution of income within the country. However, this study argues that bondholders today typically trade government bonds in secondary markets for capital gains rather than holding them until maturity. This paper examines historically and econometrically how these two mechanisms contribute to rising income inequality in Germany and emphasizes the prevalence of capital gains as the main redistributive apparatus.