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Who has really paid for the Reconstruction of East Germany? Expected and Realized Returns on Real Estate Investments in East and West Germany in the 1990s

Listed author(s):
  • Tina Bensemann


    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Dirk Kiesewetter


    (Julius-Maximilians-University Würzburg)

This paper explores cultural differences in risky choices between Australian and German students. The purpose of this paper is to challenge the wide-spread view that investment in residential property in East Germany after unification has turned out to be a financial disaster in most cases by calculating (1) the after-tax return an investor in real property might have expected at the beginning of the 1990s and (2) the after-tax return that has been realized ten years after. We compare investments by a high-income investor resident in Germany in an average individually-owned flat in three major cities in East Germany and two cities in West Germany. The result of our study is that tax subsidies have protected investors from loosing money in a real estate investment. Therefore, it was indeed the taxpayers not the investors who have borne the cost of reconstructing East Germany. But taxpayers have spent a lot more on subsidising the much bigger West German housing market where property prices and tax subsidies per average investment were much higher.

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Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 08007.

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Length: 26 pages
Date of creation: Mar 2008
Handle: RePEc:mag:wpaper:08007
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