Sustainable Social Spending and Stagnant Public Services: Baumol's Cost Disease Revisited
AbstractIf 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 InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 63 (2007)
Issue (Month): 4 (December)
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Other versions of this item:
- Frederick van der Ploeg, 2007. "Sustainable Social Spending and Stagnant Public Services: Baumol's Cost Disease Revisited," Economics Working Papers ECO2007/34, European University Institute.
- 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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