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

 
Table 2A.3: German Fiscal Shock (wage behaviour with less tax shifting)
91
92
93
94
95
96
97
98
99
00
GDP
0.68
0.83
0.46
-0.05
-0.26
-0.57
-0.98
-1.22
-1.43
-1.42
Private Consumption 0.53
0.92
0.63
0.18
-0.02
-0.29
-0.62
-0.87
-1.05
-1.00
Private Investment
1.05
-0.78
-2.74
-3.63
-4.19
-4.33
-3.71
-2.68
-1.41
-0.33
Employment
0.09
0.05
0.01
-0.03
-0.04
-0.05
-0.14
-0.28
-0.48
-0.73
Rear wage costs
0.50
0.96
0.53
0.02
-0.25
-0.53
-0.77
-0.84
-0.78
-0.50
Real net wages
0.53
-0.26
-2.28
-4.38
-5.63
-6.86
-8.18
-9.32
10.20
-10.48
CPI
0.20
0.64
0.99
1.10
1.17
1.32
1.52
1.67
1.91
2.23
Capital stock
0.04
0.04
-0.10
-0.31
-0.56
-0.81
-1.03
-1.17
-1.22
-1.19
Labour productivity
0.66
0.84
0.48
-0.03
-0.25
-0.58
-0.94
-1.08
-1.13
-0.90
Inflation
0.20
0.43
0.35
0.11
0.07
0.15
0.20
0.15
0.24
0.31
Unemployment rate
-0.08
-0.05
-0.01
0.03
0.04
0.04
0.13
0.26
0.45
0.68
Results are % deviations from baseline levels
These calculations show that due to longer-lasting effects of a tax financed increase in
expenditure GDP growth could be subdued for a extended period of time. Clearly the
simulations should serve only for illustrative purposes. The increase in taxation might not be the
only channel through which the financial burden of re-unification might have affected growth.
Another channel might be via the loss of competitiveness as a result of the strong wage
increases in the first half of the 1990s and the sharp increase in the effective exchange which
were at least partially and indirectly consequences of re-unification. Separate simulations have
been carried out to gauge the growth effect of these factors and will be presented in a later
section. Moreover, it cannot be excluded that the strong decline in government investment since
the start of the 1990s, which was partly due to efforts to compensate for the increase in current
expenditure, might have adverse effects on potential GPD growth in the longer term
34
.
34
Although studies on the productivity impact of public investment in Germany are not fully conclusive, at least
some of the these studies established a slightly positive contribution (cf. Ifo, 2001, p. 73f.)

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