The paper sets up a two-region endogenous growth model to discuss growth and regional convergence of unified Germany. It emphasises the role of private and public capital accumulati on during the developing process. The theoretical part derives fiscal policy rules which establish convergence of regional output per capita and convergence of reginal human wealth. To assess the speed of convergence the model is calibrated with German da ta. Given a fiscal policy rule that is consistent with the data on government spending in East and West Germany after unification the model suggests that East Germany will reach eighty percent of West Germany's income per capita between 20 and 30 years after unification and that actual transfers are approximately sufficient to equalise regional human wealth. The results are compared with an extension of the model that includes wage setting behaviour and unemployment in the eastern region.
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Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number
CESifo Working Paper No. 206.
Find related papers by JEL classification: H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household H40 - Public Economics - - Publicly Provided Goods - - - General O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Barro, Robert J & Sala-i-Martin, Xavier, 1992.
"Convergence,"
Journal of Political Economy,
University of Chicago Press, vol. 100(2), pages 223-51, April.
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