IDEAS home Printed from https://ideas.repec.org/p/zbw/bubdps/292015.html
   My bibliography  Save this paper

German labor market and fiscal reforms 1999 to 2008: Can they be blamed for intra-euro area imbalances?

Author

Listed:
  • Gadatsch, Niklas
  • Stähler, Nikolai
  • Weigert, Benjamin

Abstract

In this paper, we assess the impact of major German structural reforms from 1999 to 2008 on key macroeconomic variables. By many, these reforms, especially the Hartz reforms on the labor market, are considered to be the root of observed imbalances in the Euro Area. Our simulations within a two-country monetary union DSGE model show that, in terms of German GDP, consumption, investment and (un)employment, the reforms were a clear success albeit the impact on the German current account was only minor. Most importantly, the rest of the Euro Area benefited from positive spillover effects. Hence, our analysis suggests that the reforms cannot be held responsible for the currently observed macroeconomic imbalances within the Euro Area. Further simulations highlight the importance of increased savings preferences in Germany to explain the latter.

Suggested Citation

  • Gadatsch, Niklas & Stähler, Nikolai & Weigert, Benjamin, 2015. "German labor market and fiscal reforms 1999 to 2008: Can they be blamed for intra-euro area imbalances?," Discussion Papers 29/2015, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:292015
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/115889/1/834226677.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in't Veld & Lukas Vogel, 2015. "What drives the German current account? And how does it affect other EU Member States?," Economic Policy, CEPR;CES;MSH, vol. 30(81), pages 47-93.
    2. Andrey Launov & Klaus Wälde, 2013. "Estimating Incentive And Welfare Effects Of Nonstationary Unemployment Benefits," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 1159-1198, November.
    3. Olivier Blanchard & Jordi Galí, 2010. "Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 1-30, April.
    4. Philipp Engler & Giovanni Ganelli & Juha Tervala & Simon Voigts, 2017. "Fiscal Devaluation in a Monetary Union," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(2), pages 241-272, June.
    5. repec:eee:moneco:v:88:y:2017:i:c:p:15-34 is not listed on IDEAS
    6. Jose Emilio Boscá & Rafael Domenech & Javier Ferri, 2008. "Tax Reforms and Labour-market Performance: An Evaluation for Spain using REMS," Working Papers 0804, International Economics Institute, University of Valencia.
    7. Warne, Anders & Coenen, Günter & Christoffel, Kai, 2008. "The new area-wide model of the euro area: a micro-founded open-economy model for forecasting and policy analysis," Working Paper Series 944, European Central Bank.
    8. Afonso, António & Gomes, Pedro, 2014. "Interactions between private and public sector wages," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 97-112.
    9. Christoffel, Kai & Kuester, Keith & Linzert, Tobias, 2009. "The role of labor markets for euro area monetary policy," European Economic Review, Elsevier, vol. 53(8), pages 908-936, November.
    10. Marcus Hagedorn & Iourii Manovskii & Kurt Mitman, 2015. "The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle?," NBER Working Papers 20884, National Bureau of Economic Research, Inc.
    11. J. Boscá & A. Díaz & R. Doménech & J. Ferri & E. Pérez & L. Puch, 2010. "A rational expectations model for simulation and policy evaluation of the Spanish economy," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(1), pages 135-169, March.
    12. Sandra Gomes & Pascal Jacquinot & Matthias Mohr & Massimiliano Pisani, 2013. "Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment," International Finance, Wiley Blackwell, vol. 16(1), pages 23-44, February.
    13. Krebs, Tom & Scheffel, Martin, 2014. "Labor Market Reform and the Cost of Business Cycles," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100427, Verein für Socialpolitik / German Economic Association.
    14. Hobza, Alexandr & Zeugner, Stefan, 2014. "Current accounts and financial flows in the euro area," Journal of International Money and Finance, Elsevier, vol. 48(PB), pages 291-313.
    15. Busl, Claudia & Seymen, Atılım, 2013. "The German labour market reforms in a European context: A DSGE analysis," ZEW Discussion Papers 13-097, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    16. Tom Krebs & Martin Scheffel, 2013. "Macroeconomic Evaluation of Labor Market Reform in Germany," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(4), pages 664-701, December.
    17. Andrés, Javier & Arce, Óscar & Thomas, Carlos, 2017. "Structural reforms in a debt overhang," Journal of Monetary Economics, Elsevier, vol. 88(C), pages 15-34.
    18. Moyen, Stéphane & Stähler, Nikolai, 2009. "Unemployment insurance and the business cycle: prolong benefit entitlements in bad times?," Discussion Paper Series 1: Economic Studies 2009,30, Deutsche Bundesbank.
    19. Bettendorf, Timo & León-Ledesma, Miguel A., 2015. "German wage moderation and European imbalances: Feeding the global VAR with theory," Discussion Papers 15/2015, Deutsche Bundesbank.
    20. Ascari, Guido & Castelnuovo, Efrem & Rossi, Lorenza, 2011. "Calvo vs. Rotemberg in a trend inflation world: An empirical investigation," Journal of Economic Dynamics and Control, Elsevier, vol. 35(11), pages 1852-1867.
    21. European Commission, 2014. "Taxation trends in the European Union: 2014 edition," Taxation trends 2014, Directorate General Taxation and Customs Union, European Commission.
    22. Launov, Andrey & Wälde, Klaus, 2013. "Thumbscrews for Agencies or for Individuals? How to Reduce Unemployment," IZA Discussion Papers 7659, Institute for the Study of Labor (IZA).
    23. Ascari, Guido & Rossi, Lorenza, 2011. "Real wage rigidities and disinflation dynamics: Calvo vs. Rotemberg pricing," Economics Letters, Elsevier, vol. 110(2), pages 126-131, February.
    24. Moyen, Stéphane & Stähler, Nikolai, 2014. "Unemployment Insurance And The Business Cycle: Should Benefit Entitlement Duration React To The Cycle?," Macroeconomic Dynamics, Cambridge University Press, vol. 18(03), pages 497-525, April.
    25. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-132, March.
    26. Arent Stefan & Nagl Wolfgang, 2013. "Unemployment Compensation and Wages: Evidence from the German Hartz Reforms," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 233(4), pages 450-466, August.
    27. Tom Krebs & Martin Scheffel, 2013. "Macroeconomic Evaluation of Labor Market Reform in Germany," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(4), pages 664-701, December.
    28. European Commission, 2011. "Taxation trends in the European Union: 2011 edition," Taxation trends 2011, Directorate General Taxation and Customs Union, European Commission.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Timo Bettendorf & Miguel A. Leon-Ledesma, 2015. "German Wage Moderation and European Imbalances: Feeding the Global VAR with Theory," Studies in Economics 1510, School of Economics, University of Kent.
    2. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2015. "Zukunftsfähigkeit in den Mittelpunkt. Jahresgutachten 2015/16," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201516.
    3. Alexander Herzog-Stein & Heike Joebges & Torsten Niechoj & Ulrike Stein & Rudolf Zwiener, 2015. "German labour costs have risen only moderately," IMK Report 109e-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Attinasi, Maria-Grazia & Prammer, Doris & Stähler, Nikolai & Tasso, Martino & Van Parys, Stefan, 2016. "Budget-neutral labour tax wedge reductions: A simulation-based analysis for selected euro area countries," Discussion Papers 26/2016, Deutsche Bundesbank.
    5. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung (ed.), 2014. "Mehr Vertrauen in Marktprozesse. Jahresgutachten 2014/15," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201415.

    More about this item

    Keywords

    Fiscal Policy; Labor Market Reforms; DSGE Modeling; Macroeconomics;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bubdps:292015. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics). General contact details of provider: http://edirc.repec.org/data/dbbgvde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.