The macroeconomic effects of German unification: Real adjustments and the welfare state
AbstractWe study the effects of German unification in a model with capital accumulation, skill differences and a welfare state. We argue that this event is similar to a mass migration of low-skilled agents holding no capital into a foreign country. Absent a welfare state, we observe an investment boom, depressed output and employment conditions. Capital owners and high-skilled agents are willing to give up to 4% of per-capita consumption to favor unification. When a welfare state exists the investment boom disappears and the recession is prolonged. Now, with unification, capital owners and high-skilled agents lose 4% of per-capita consumption.
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Bibliographic InfoPaper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 442.
Date of creation: Mar 2000
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Web page: http://www.econ.upf.edu/
Unification; redistribution; tax distortions; welfare;
Other versions of this item:
- Fabio Canova & Morten Ravn, 2000. "The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 423-460, July.
- Canova, Fabio & Ravn, Morten O., 1998. "The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State," CEPR Discussion Papers 2038, C.E.P.R. Discussion Papers.
- B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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