Spending on social assistance has risen two and a half times as fast as GDP over the past two decades, complicating Germany's efforts at fiscal consolidation. When recipients begin to work, they almost immediately lose all or part of their benefits. The withdrawal of benefits is a kind of implicit taxation, which, combined with explicit taxation on earnings, may discourage low-income workers from seeking employment. By 1994, nearly 2.5 million people were collecting social assistance. But the real value of benefits has also increased significantly.
International comparisons are difficult to make.
The work incentive problem stemming from high effective tax rates is similar in all these countries, however. Recipients One striking feature of the social assistance program in Germany is a decline in the average age of recipients. For nationals, the average age has fallen from 41 to 33 since 1972. This decline was due not to an increase in the share of children, who receive their own basic allowance, but to a decline in the proportion of pensioners. The proportion of recipients of working age has increased substantially, from 39 percent of the total in 1972 to 56 percent in 1994.