Working Paper

Transitional dynamics of output and factor income shares: lessons from East Germany

Abstract: I evaluate the quantitative implications of technology change and government policies for output and factor income shares during East Germany's transition since 1990. I model an economy that gains access to a high productivity technology embodied in new plants. As existing low productivity plants decrease production, the capital income share varies due to variation in the profit share of these plants. Two policies - transfers and government-mandated wage increases - have opposite effects on output growth, but both contribute to reducing the capital share during the transition. The model's output and capital share line up with counterparts in East German data.

Keywords: Income distribution; Economic development; Technology - Economic aspects; Productivity; Capital investments; Wages;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2010

Number: 43