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German unification: A progress report

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  • Schmidt, Klaus-Dieter
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    Abstract

    In the five years after unification, efforts to bring up the eastern part of Germany to the level of the western one have made considerable progress. Eastern Germany's growth is moving towards the double digits, just like growth in the Pacific Rim region. But not all things have developed as well as they might. Rapid wage convergence has caused enormous unemployment in the east and a heavy tax burden in financing massive transfer payments in the west. The paper analyses the catching up of the eastern German economy against the background of the unpleasant trade-off between the pace of wage increase and the level of transfer payments necessary to spur investment and to finance consumption. It describes - first, the two-pronged policy mix to reconstruct and modernize the eastern German economy on a firm level, and, - second, typical adjustment profiles for the economy as a whole with regard to capital stock, output, and employment. Finally, it discusses the key policy question of how the high unemployment as well as the high costs of public assistance could be reduced.

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    File URL: http://econstor.eu/bitstream/10419/46917/1/257611363.pdf
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    Bibliographic Info

    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 722.

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    Date of creation: 1996
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    Handle: RePEc:kie:kieliw:722

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    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.:
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    1. Begg, David & Portes, Richard, 1992. "Eastern Germany Since Unification: Wage Subsidies Remain a Better Way," CEPR Discussion Papers 730, C.E.P.R. Discussion Papers.
    2. Hughes Hallett, Andrew & Ma, Yue & Mélitz, Jacques, 1994. "Unification and the Policy Predicament in Germany," CEPR Discussion Papers 956, C.E.P.R. Discussion Papers.
    3. Sinn, Gerlinde & Sinn, Hans-Werner, 1992. "Kaltstart. Volkswirtschaftliche Aspekte der Deutschen Vereinigung," Monograph, Mohr Siebeck, Tübingen, edition 2, number urn:isbn:9783161459429, February.
    4. Landesmann,Michael A. & Székely,István P. (ed.), 1995. "Industrial Restructuring and Trade Reorientation in Eastern Europe," Cambridge Books, Cambridge University Press, number 9780521480857, November.
    5. Carlin, Wendy & Richthofen, Peter, 1995. "Finance, economic development and the transition: the East German case," Discussion Papers, Research Unit: Economic Change and Employment FS I 95-301, Social Science Research Center Berlin (WZB).
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    Cited by:
    1. Boss, Alfred & Döpke, Jörg & Fischer, Malte & Langfeldt, Enno & Schatz, Klaus-Werner, 1996. "Bundesrepublik Deutschland: Konsolidierung der öffentlichen Haushalte - konjunkturelle Erholung setzt sich fort," Open Access Publications from Kiel Institute for the World Economy 1690, Kiel Institute for the World Economy (IfW).
    2. Gerling, Katja & Schmidt,Klaus-Dieter, 1997. "On the competitive position of Eastern German manufacturing: Why is catching-up so slow?," Kiel Working Papers 825, Kiel Institute for the World Economy.
    3. Klodt, Henning, 1996. "West-Ost-Transfers und Strukturprobleme in den neuen Ländern," Open Access Publications from Kiel Institute for the World Economy 1677, Kiel Institute for the World Economy (IfW).

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