The welfare state and Baumol’s law
AbstractThe paper considers a two-sector economy with a constant population: The public sector, with stable productivity, and a private sector, with productivity growth. Baumol’s law says that such an economy has no steady state. It is demonstrated what this means. Two attempts to uphold a policy that fixes a key ratio are discussed: One policy fixes the tax share - this causes the share of the real public sector to vanish. The other policy fixes the share of real public production - this causes the tax pressure to keep rising.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2009-05.
Date of creation: 24 Mar 2009
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Web page: http://www.econ.au.dk/afn/
Welfare state; steady state growth;
Find related papers by JEL classification:
- H5 - Public Economics - - National Government Expenditures and Related Policies
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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