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

Fabio Canova and Morten Ravn

Review of Economic Dynamics, 2000, vol. 3, issue 3, 423-460

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. (Copyright: Elsevier)

Keywords: German unification; capital accumulation; skill differences; credit constraints; the welfare state (search for similar items in EconPapers)
JEL-codes: E32 E62 F22 H23 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (54)

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Working Paper: The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State (1998)
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DOI: 10.1006/redy.2000.0096

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