European Economy. Economic Papers. Germany's growth performance in the 1990's

Box 3 (continued)
and the business capital tax in the West that had never been introduced in the East so that they
were no longer accounted as tax breaks. Per DEM 1000 of GDP, there were DEM 182 of
subsidies in 1991 and DEM 97 in 1999 in the East, while the value was rather stable at about
DEM 30 in West Germany.
25
Figure B3.1: State aid and tax breaks in the new Länder in billion ECU/€, 1991-1999
Source: Deutsche Bundesbank 2000 (based on data from Federal Ministry of Finance)
The number of start-ups and liquidations in East Germany can be seen as a further indicator for
the success of these various measures (Figure B3.2). The number of start-ups halved from
140,000 in 1991 to 74,000 in 1994, and increased again to 96,000 in 1998.
26
However, at the
same time the number of liquidations increased steadily from 11,000 in 1991 to 87,000 in 1998,
leading to a total addition of only 9,000 in 1998. Nevertheless, adding up the total balance from
1991-1998, a net 328,000 enterprises have been created and survived.
A further indicator for the success of policies in the new Länder is the volume of investment
which, in order to converge towards the West German economy, needs to be higher for a
considerable period of time. In per capita terms, gross fixed capital formation in constant prices
has indeed been higher than in West Germany since 1993, by more than 50% in 1995 but then
declining to 24% in 1998 (Figure B3.3). However, it must be taken into account that the figures
also include public investment which have a considerable share of total investment in East
Germany. In most years, about two thirds of fixed investment have been in buildings, while
only one third went into equipment. This is a problem with regard to private housing where
over-capacities have built up so that an estimated 1 million apartments are now deserted. Most
of them are low-quality standard GDR houses – leading to calls for public funding to tear down
those buildings. The capital stock per person employed, excluding renting and agriculture, is
estimated to have only increased from 46% of the West German level in 1991 to a level of 76%
in 1998.
27
25
Cf. Pohl 2000, p.233 based on data from Federal Ministry of Finance.
26
Actual market entries, estimated on the basis of commercial business registrations, applications for the Federal
financial support programme ERP and on empirical inquiries. It must be taken into account though, that the
high number of start-ups in East Germany in the early 1990s was partially the outcome of the restructuring and
privatisation of GDR socialist firms (“
Kombinate
”) with a very high vertical integration and social policy
functions.
27
Cf. Ragnitz 1999, p. 173
0
2
4
6
8
10
12
14
16
18
20
1991
1992
1993
1994
1995
1996
1997
1998
1999
state aid
tax break

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