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Declining transfer payments on the economic performance in Eastern Germany

Author

Listed:
  • Michael Kloß
  • Robert Lehmann
  • Joachim Ragnitz
  • Gerhard Untiedt

Abstract

The European Union currently discusses the new classification of regions for the EU Structural Funds period after 2013. The flow of structural funds into a region depends on the region’s economic performance in comparison to the EU-27 average. Classifying Eastern German regions by means of actual figures, however, would overestimate Eastern Germany’s economic strength as it is still highly reliant on transfer payments. These transfer payments will decrease significantly up to 2020. This study quantifies the impacts of declining transfer payments on key national accounts. The decline of transfers will reduce the Eastern German gross domestic product by 2 %, ceteris paribus. As the better part of transfers is used for consumption of non-tradable goods, the impact on the service sector and on construction will be stronger than the effect for the manufacturing industry. Furthermore, declining transfers will cause employment to be 3 % lower. Despite these macroeconomic effects, Eastern Germany will reach a convergence level of 80 % in comparison to the EU-27 average. Hence, the states of Eastern Germany will not qualify for the maximum of structural funds, if the thresholds for EU-transfers remain the same.

Suggested Citation

  • Michael Kloß & Robert Lehmann & Joachim Ragnitz & Gerhard Untiedt, 2012. "Declining transfer payments on the economic performance in Eastern Germany," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 63.
  • Handle: RePEc:ces:ifodrs:63
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    References listed on IDEAS

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    Cited by:

    1. Joachim Ragnitz, 2014. "25 Jahre nach dem Mauerfall: Anmerkungen zum Stand der Deutschen Einheit," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 21(05), pages 44-47, October.
    2. Alexander Eck & Joachim Ragnitz & Simone Scharfe & Christian Thater & Bernhard Wieland, 2015. "Public Investments in Infrastructure: Development, Causal Factors and Growth Effects," ifo Dresden Studien, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 72.
    3. Robert Lehmann & Joachim Ragnitz, 2012. "The Solidarity Surcharge to Support Eastern German Länder – Status quo and Outlook," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(03), pages 25-30, February.
    4. Streeck, Wolfgang & Elsässer, Lea, 2014. "Monetary disunion: The domestic politics of Euroland," MPIfG Discussion Paper 14/17, Max Planck Institute for the Study of Societies.
    5. Michael Kloß & Robert Lehmann & Joachim Ragnitz & Gerhard Untiedt, 2012. "Gesamtwirtschaftliche Effekte verminderter Transferzahlungen für die ostdeutschen Bundesländer," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 19(01), pages 21-28, February.
    6. Böhm, Sebastian, 2015. "Regional economic integration and factor mobility in unified Germany," FSES Working Papers 463, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.

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    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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