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German unification: A progress report

  • Schmidt, Klaus-Dieter
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    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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    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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    1. David Begg & Richard Portes, 1993. "Eastern Germany since unification: wage subsidies remain a better way," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(4), pages 383-400, December.
    2. Hughes Hallett, Andrew & Ma, Yue & Melitz, Jacques, 1994. "Unification and the Policy Predicament in Germany," CEPR Discussion Papers 956, C.E.P.R. Discussion Papers.
    3. repec:cup:cbooks:9780521480857 is not listed on IDEAS
    4. Sinn, Gerlinde & Sinn, Hans-Werner, 1992. "Kaltstart. Volkswirtschaftliche Aspekte der Deutschen Vereinigung," Monograph, Mohr Siebeck, Tübingen, edition 2, number urn:isbn:9783161459429.
    5. Wendy Carlin & Peter Richthofen, 1995. "Finance, economic development and the transition: the East German case," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(2), pages 169-195, 06.
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