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

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Author Info
Frederick van der Ploeg

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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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Publisher 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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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H0 - Public Economics - - General
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J4 - Labor and Demographic Economics - - Particular Labor Markets
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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This page was last updated on 2008-9-25.

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