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The Collapse And Recovery Of The Capital Share In East Germany After 1989

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  • Simona E. Cociuba

Abstract

After the 1990 unification, East Germany's capital income share plunged to 15.2% in 1991, then increased to 37.4% by 2015. To account for these large changes in the capital share, I model an economy that gains access to a higher productivity technology embodied in new plants. As existing low productivity plants decrease production, the capital share varies due to the nonconvex production technology: plants require a minimum amount of labor to produce output. Two policies—transfers and government‐mandated wage increases—have opposite effects on output growth, but contribute to lowering the capital share early in the transition. (JEL E20, E25, O11)

Suggested Citation

  • Simona E. Cociuba, 2019. "The Collapse And Recovery Of The Capital Share In East Germany After 1989," Economic Inquiry, Western Economic Association International, vol. 57(4), pages 2035-2057, October.
    • Handle: RePEc:bla:ecinqu:v:57:y:2019:i:4:p:2035-2057
    DOI: 10.1111/ecin.12801
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    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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