The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State

Fabio Canova () and Morten Ravn ()

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We study the effects of German unification in a model with capital accumulation, skill differences and a welfare state. We argue that this event is similar to a mass migration of low-skilled agents holding no capital into a foreign country. Absent a welfare state, we observe an investment boom, depressed output and employment conditions. Capital owners and high-skilled agents are willing to give up to 4% of per-capita consumption to favor unification. When a welfare state exists the investment boom disappears and the recession is prolonged. Now, with unification, capital owners and high-skilled agents lose 4% of per-capita consumption.

Keywords: Unification; redistribution; tax distortions; welfare (search for similar items in EconPapers)
JEL-codes: B41 E32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2000-03
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Related works:
Working Paper: The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State (1998)
Journal Article: The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:upf:upfgen:442

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