The Consequences of the Social Contract in Income Inequality: A Comparison Study of Germany and Brazil

Recently, causes and consequences of inequality have become more relevant than ever. Income inequality rates have steadily been increasing for the past three decades (Milanovic, 2011), however, it was not until the year 2008, the moment that global financial crisis has shown the perverse consequences of these two-speed societies, when most influential institutions have put inequality at the centre of a global debate. On 17th January 2014, inequality has reached the first position as a most likely global risk ranked by the World Economic Forum (2014) for the second year in a row.

The main aim of this study is no other than shining more light and clarifying the role of social contract in inequality rates. This is undertaken through two paradigmatic examples, namely Germany and Brazil whose evolution on income inequality is dramatically different.

If the social contract affects income inequality of individuals and citizens who participate in the social contract, its citizens in a democratic country may possibly have certain margin to affect this income inequality. In other words, Brazilians and Germans are affected by the income inequality of their respective country, however, they have the power to change it. Hence, this logic result is remarkably interesting due to its link with politics. It is paradigmatic how every country acts politically different regarding inequality rates; while in one country with low rates of inequality politicians can be punished, in another one with substantially higher rates of inequality these politicians can be approved by its citizens.

In conclusion, two different models of social contract are being contrasted by this thesis. While social security has been more important for Germany in order to improve inequality levels from the unification process, social expenditure has been more important in Brazil to tackle the systemic and dramatically high levels of income inequality.