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Sustainable Social Spending and Stagnant Public Services: Baumol's Cost Disease Revisited

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  • Frederick van der Ploeg

Abstract

If demand for human services is inelastic or manufactured goods are necessities, labor shifts from manufacturing to services and the budget share of services rises. Higher productivity growth in the market sector pushes up the tax rate and public employment if private goods and public services are poor substitutes, labor supply is inelastic, and there are few dependents. Otherwise, private affluence and public squalor result. More dependents boost public employment if the market provides poor substitutes, but public services per dependent may fall due to tax base erosion. We also provide extensions to market and public employment being imperfect substitutes, to varying utility of money, and to public-sector productivity depending on pay.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 63 (2007)
Issue (Month): 4 (December)
Pages: 519-547

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200712)63:4_519:sssasp_2.0.tx_2-x

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Related research

Keywords: Baumol's cost disease; Wagner's law; congestion; cost of public funds; dependency ratio;

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References

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  1. Assar Lindbeck, 2005. "Sustainable Social Spending," CESifo Working Paper Series 1594, CESifo Group Munich.
  2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
  3. Baumol, William J & Blackman, Sue Anne Batey & Wolff, Edward N, 1985. "Unbalanced Growth Revisited: Asymptotic Stagnancy and New Evidence," American Economic Review, American Economic Association, vol. 75(4), pages 806-17, September.
  4. Michiel Evers & Ruud A. De Mooij & Daniel J. Van Vuuren, 2005. "What Explains the Variation in Estimates of Labour Supply Elasticities?," CESifo Working Paper Series 1633, CESifo Group Munich.
  5. Summers, Lawrence H, 1988. "Relative Wages, Efficiency Wages, and Keynesian Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 383-88, May.
  6. Anisul Islam, 2001. "Wagner's law revisited: cointegration and exogeneity tests for the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 8(8), pages 509-515.
  7. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  8. William Baumol, 1996. "Children of performing arts, the economic dilemma: The climbing costs of health care and education," Journal of Cultural Economics, Springer, vol. 20(3), pages 183-206, September.
  9. Bas van Groezen & Lex Meijdam & Harrie A. A. Verbon, 2005. "Serving the old: ageing and economic growth," Oxford Economic Papers, Oxford University Press, vol. 57(4), pages 647-663, October.
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Cited by:
  1. Facchini, Francois, 2014. "The determinants of public spending: a survey in a methodological perspective," MPRA Paper 53006, University Library of Munich, Germany.

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