Despite the prevalence of government surveillance systems around the world, causal evidence on their social and economic consequences is lacking. Using county-level variation in the number of Stasi informers within Socialist East Germany during the 1980s and accounting for potential endogeneity, we show that more intense regional surveillance led to lower levels of trust and reduced social activity in post-reunification Germany. We also find substantial and long-lasting economic effects of Stasi spying, resulting in lower self-employment, higher unemployment and larger out-migration throughout the 1990s and 2000s. We further show that these effects are due to surveillance and not alternative mechanisms. We argue that our findings have important implications for contemporary surveillance systems.

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IntroductionDespite considerable public interest in distributional issues in Germany as well as in many other countries, systematic analyses of the evolution of the income distribution and its potential determinants remain surprisingly rare. There is a well-established literature in labour economics that studies rising inequalities in wage incomes (for Germany, see Dustmann et al., 2009, FuchsSchündeln et al., 2010, Fitzenberger, 2012, and Card et al., 2013. The distribution of wages paid in the labour market is certainly a major component of the overall distribution of incomes, and it is important for our understanding of how labour markets work. However, the final distribution of disposable incomes in a population is the complex outcome of a large number of further factors such as the development of household forms, the employment opportunities and employment decisions of households, the influence of other income sources such as capital incomes, and the transformation of market incomes into net disposable incomes through the tax and transfer system. The goal of this paper is to provide a detailed analysis of the potential influence of these factors on the German income distribution for the period 2005/2006 to 2010/2011. We consider in detail the potential impact of changes in the composition of the population with respect to household types and household characteristics, changes in household employment outcomes and labour market returns, the role of capital incomes as well as the potential effect of reforms in the tax and transfer system. Each of these factors may have their own effect on the distribution of net incomes and some of these effects may oppose each other. Among many other things, we address the puzzling question why, after considerable increases in inequality and poverty risk between 1999/2000 and 2005/2006, the highly dynamic development of the German labour market did not lead to a decrease in inequality and poverty after 2006. We also provide evidence that reconciles seemingly contradictory results on further increasing wage inequality derived from administrative data sources such as the SIAB and the finding that inequality in yearly labour incomes as measured in a household survey like the SOEP did not increase further after 2006. Finally, as our period under consideration covers the financial crisis of 2007/2008 and the subsequent great recession, we are able to assess the potential influence of these important global events on the German income distribution. 1Our study complements and extends the limited number of contributions that deal with the general evolution of the German income distribution, see Biewen and Juhasz (2012), Grabka et al. (2012), Grabka and Goebel (2013), IAW (2013), Schmid and Stein (2013), Sachverständigenrat (2011, 2015, Corneo (2015), and Feld and Schmidt (2016). Grabka et al. (2012), Grabka and Goebel (2013), Schmid and Stein (2013), Sachverständigenrat (2011, 2015 as well as Feld and Schmidt (2016) document and discuss a number of relevant trends in the distributi...

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. AbstractThe German experience of the crisis was very different compared to those of most other countries in Europe. Germany was hit by a very strong shock which was relatively concentrated in the exporting, manufacturing industries. In addition, the German labour market was very resilient during the crisis due to earlier labour market reforms and policy instruments facilitating labour hoarding. As a consequence, public finances were only moderately affected and not many policy reforms had to be enacted. This chapter will present the German experience of the financial crisis. We start by presenting the macroeconomic situation and how the crisis unfolded in Germany, before focusing on the situation of public finances. Finally, we analyse the policy responses to the financial crisis.JEL Classification: H12, H23, H32, H60

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