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

Authors :
Morten O. Ravn
Fabio Canova
Source :
Review of Economic Dynamics. 3(3):423-460
Publication Year :
2000

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. Journal of Economic Literature Classification Numbers: E32, E62, F22, H23.

Details

Volume :
3
Issue :
3
Database :
OpenAIRE
Journal :
Review of Economic Dynamics
Accession number :
edsair.doi.dedup.....0d6baf893da5f206c7b3f179a313baea
Full Text :
https://doi.org/10.1006/redy.2000.0096