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Can Public Sector Wage Bills Be Reduced?

In: Fiscal Policy after the Financial Crisis

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  • Pierre Cahuc
  • Stéphane Carcillo

Abstract

This paper analyzes the relation between public wage bills and public deficits in the OECD countries from 1995 to 2009. The paper shows that fiscal drift episodes, characterized by simultaneous increases in the GDP shares of public wage bills and budget deficits, are more frequent during booms and election years, but not during recessions, except for the 2009 exceptionally strong recession. The emergence of fiscal drift episodes during booms and election years is less frequent in countries with more transparent government, more freedom of the press, as well as in countries with presidential regimes and less union coverage. Inversely, fiscal tightening episodes, characterized by simultaneous decreases in the GDP shares of public wage bills and budget deficits, occur less often during booms than during recessions. The emergence of fiscal tightening episodes during recessions and election years is less frequent in countries with more union coverage.
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Suggested Citation

  • Pierre Cahuc & Stéphane Carcillo, 2012. "Can Public Sector Wage Bills Be Reduced?," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 359-402, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:12648
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    References listed on IDEAS

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    Cited by:

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    2. Gregory T. Papanikos, 2014. "Greek Labor Market, The Euro And The Current Crisis," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 59(04), pages 1-27.
    3. Mr. Kamil Dybczak & Ms. Mercedes Garcia-Escribano, 2019. "Fiscal Implications of Government Wage Bill Spending," IMF Working Papers 2019/010, International Monetary Fund.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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