Why is the public sector more labor-intensive? A distortionary tax argument
AbstractA relatively high labor-intensity in government-run entities need not imply slack in their organization. Rather, it is a rational reaction to various forms of wage tax advantage that the public sector has over private firms. Even though an unequal tax treatment of public and private sectors precludes production efficiency, it may improve welfare by mitigating the labor supply distortion. With inelastic labor supply, privatizing a previously government-run sector improves welfare, while with elastic labor supply a full outsourcing of government activities can never be optimal if it goes along with a decrease in net wages.
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Bibliographic InfoArticle provided by Springer in its journal Journal of Economics.
Volume (Year): 94 (2008)
Issue (Month): 2 (July)
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Web page: http://www.springerlink.com/link.asp?id=108909
Public sector; Labor intensity; Taxation; L33; J45; D24; H21;
Other versions of this item:
- Poutvaara, Panu & Wagener, Andreas, 2004. "Why Is the Public Sector More Labor-Intensive? A Distortionary Tax Argument," IZA Discussion Papers 1413, Institute for the Study of Labor (IZA).
- Panu Poutvaara & Andreas Wagener, 2004. "Why is the Public Sector More Labor-Intensive? A Distortionary Tax Argument," CESifo Working Paper Series 1259, CESifo Group Munich.
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
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