Do Government Wage Cuts Close Budget Deficits? Costs of Corruption
AbstractReal wage declines have been common in the public sector in many countries over substantial periods of time. In several cases, such wage reductions have coincided with declines in the efficiency of the public sector. In a simple analytical framework, it is shown that higher wage levels alter the incentive-compatible equilibrium by attracting relatively skilled human capital to the government sector, which raises the quality of public output--tax revenue collection in this paper. Increases in wages should complement appropriate monitoring and penalty rates for effective tax administration; prescriptions of raising the statutory tax rate alone, however, may not increase revenue collection.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.
Volume (Year): 43 (1996)
Issue (Month): 4 (December)
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- H1 - Public Economics - - Structure and Scope of Government
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
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