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Public Providers, versus Private Providers, of Public Goods: A General Equilibrium Study of the Role of the State

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Author Info

  • George Economides
  • Apostolis Philippopoulos
  • Vangelis Vassilatos

Abstract

This paper studies the difference between public production and public finance of public goods in a dynamic general equilibrium setup. By public finance, we mean that the public good is produced by private providers with the government financing their costs. When the model is calibrated to match fiscal data from the UK economy, the main result is that, ceteris paribus, a switch from public production to public finance can have substantial aggregate and distributional implications. Public providers cannot beat private providers in terms of aggregate efficiency. We finally design a transfer scheme that can make a switch to private provision welfare improving for all agents including public employees.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-06/cesifo1_wp3487.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3487.

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Date of creation: 2011
Date of revision:
Handle: RePEc:ces:ceswps:_3487

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Related research

Keywords: public goods; growth; welfare;

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References

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  1. Teresa Garcia-Milà & Albert Marcet & Eva Ventura, 2010. "Supply Side Interventions and Redistribution," Economic Journal, Royal Economic Society, vol. 120(543), pages 105-130, 03.
  2. Fernàndez-de-Córdoba, Gonzalo & Pérez, Javier J. & Torres, José L., 2009. "Public and private sector wages interactions in a general equilibrium model," Working Paper Series 1099, European Central Bank.
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Citations

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Cited by:
  1. Aleksandar Vasilev, 2013. "Fiscal policy in a Real-Business-Cycle model with labor-intensive government services and endogenous public sector wages and hours," Working Papers 2013_18, Business School - Economics, University of Glasgow.
  2. Aleksandar Vasilev, 2013. "On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework," Working Papers 2013_20, Business School - Economics, University of Glasgow.
  3. George Economides & Dimitris Papageorgiou & Apostolis Philippopoulos & Vanghelis Vassilatos, 2013. "Smaller Public Sectors in the Euro Area: Aggregate and Distributional Implications," CESifo Economic Studies, CESifo, vol. 59(3), pages 536-558, September.

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