Transfers, non-tradable goods and a distorted economy in eastern Germany

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

No 7002, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: A neoclassical 2x2 model with one tradable and one non-tradable good is used to examine some effects of the public transfers to eastern Germany. Results indicate that transfers enlarge the non-tradable sector at the expense of the tradable sector. In the case of minimum-wage-induced unemployment, transfers have a similar localisation effect. Using data from social security employment statistics, the localisation effect can clearly be shown. The paper concludes with some speculation on the effects of transfers on growth prospects and hypothesises whether the transfer itself might be one cause for the low growth rates of the eastern German economy.

Keywords: Transfer; non-tradeable goods; eastern Germany (search for similar items in EconPapers)
JEL-codes: F11 P24 R11 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2007-01
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