Labor Market and Budgetary Effects of Eastern Enlargement in Germany

  • Christian Keuschnigg
Chapter

Abstract

This paper develops the first intertemporal, computable general equilibrium model combining search unemployment with optimizing savings and investment dynamics. The model is calibrated to replicate the German economy and is applied to quantify the effects of Eastern enlargement of the European Union. The basic enlargement scenario includes trade liberalization, an increase in net contributions to the EU, and some adjustments in common agricultural policy. A separate scenario considers the effects from immigration. Enlargement is found to trigger an investment led expansion. It generates considerable fiscal returns that allow to pay for Germany’s share in the fiscal cost to the EU without cutting any expenditure or raising taxes. The expected increase in the wage spread does not materialize. Labor market effects are mainly felt in higher wages rather than lower unemployment. Immigration of low-skilled workers depresses their wages and raises unemployment among them while high-skilled domestic workers gain on both accounts.

Keywords

European Union Trade Integration Labour Market Effect Tariff Revenue European Union Enlargement 
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Copyright information

© Springer Science+Business Media New York 2001

Authors and Affiliations

  • Christian Keuschnigg

There are no affiliations available

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