Rolling Back the Public Sector - Differential Effects on Employment, Investment and Growth
AbstractThe macroeconomic effects on growth, investment and private sector employment of different ways of rolling back the welfare state are analysed. Cutting public spending on private goods induces a lower interest rate, a higher wage, a lower capital stock and a fall in employment. Cutting public employment or the income tax rate leads, in contrast, to a lower wage, a higher interest rate and a higher capital stock. Employment rises on impact. If the extra revenues of rolling back the welfare state are handed back via a lower income tax rate rather than a lump-sum subsidy, both cutting public employment and cutting public spending on private goods induce an investment boom. Making the tax system less progressive by cutting tax credits and the income tax rate induces an investment boom as well. The effects of endogenous growth, adjustment costs for investment and non-competitive labour markets are considered as well
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 890.
Date of creation: 2003
Date of revision:
welfare state; public employment; labour market; investment; economics growth;
Other versions of this item:
- Frederick van der Ploeg, 2006. "Rolling back the public sector: differential effects on employment, investment, and growth," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 103-122, January.
- van der Ploeg, Frederick, 2005. "Rolling Back the Public Sector - Differential Effects on Unemployment, Investment and Growth," CEPR Discussion Papers 4896, C.E.P.R. Discussion Papers.
- D90 - Microeconomics - - Intertemporal Choice - - - General
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-02 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 1999.
"Fiscal Policy, Profits, and Investment,"
NBER Working Papers
7207, National Bureau of Economic Research, Inc.
- Alesina, Alberto F & Ardagna, Silvia & Perotti, Roberto & Schiantarelli, Fabio, 1999. "Fiscal Policy, Profits and Investment," CEPR Discussion Papers 2250, C.E.P.R. Discussion Papers.
- Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2000. "Fiscal Policy, Profits, and Investment," Boston College Working Papers in Economics 504, Boston College Department of Economics.
- Schiantarelli, Fabio & Perotti, Roberto & Ardagna, Silvia & Alesina, Alberto, 2002. "Fiscal Policy, Profits, and Investment," Scholarly Articles 4685103, Harvard University Department of Economics.
- Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
- Evi Pappa, 2005.
"New-keynesian or RBC transmission? The effects of fiscal shocks in labour markets,"
LSE Research Online Documents on Economics
524, London School of Economics and Political Science, LSE Library.
- Pappa, Evi, 2005. "New-Keynesian or RBC Transmission? The Effects of Fiscal Shocks in Labour Markets," CEPR Discussion Papers 5313, C.E.P.R. Discussion Papers.
- Calmfors, Lars & Horn, Henrik, 1986. "Employment Policies and Centralized Wage-Setting," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 53(211), pages 281-302, August.
- Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
- Finn, Mary G, 1998. "Cyclical Effects of Government's Employment and Goods Purchases," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 635-57, August.
- Fumio Hayashi, 1981.
"Tobin's Marginal q and Average a : A Neoclassical Interpretation,"
Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science
457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, Econometric Society, vol. 50(1), pages 213-24, January.
- Holmlund, Bertil, 1997. "Macroeconomic Implications of Cash Limits in the Public Sector," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 64(253), pages 49-62, February.
- Evi Pappa, 2005. "New Keynesian or RBC Transmission? The Effects of Fiscal Policy in Labor Markets," Working Papers 293, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Frederick VAN DER PLOEG, 2004. "DO SOCIAL POLICIES HARM EMPLOYMENT? Second-best effects of taxes and benefits on labor markets," Economics Working Papers ECO2004/11, European University Institute.
- Frederick van der Ploeg, 2003. "Do Social Policies Harm Employment and Growth?," CESifo Working Paper Series 886, CESifo Group Munich.
- W. Robert Reed, 2006.
"The Determinants of U. S. State Economic Growth: A Less Extreme Bounds Analysis,"
Working Papers in Economics
06/05, University of Canterbury, Department of Economics and Finance.
- W. Robert Reed, 2009. "The Determinants Of U.S. State Economic Growth: A Less Extreme Bounds Analysis," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 685-700, October.
- Giovanni Ganelli, 2005.
"The International Effects of Government Spending Composition,"
IMF Working Papers
05/4, International Monetary Fund.
- Ganelli, Giovanni, 2010. "The international effects of government spending composition," Economic Modelling, Elsevier, vol. 27(3), pages 631-640, May.
- Petrucci, Alberto & Phelps, Edmund S., 2009. "Two-sector perspectives on the effects of payroll tax cuts and their financing," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 176-190, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra).
If references are entirely missing, you can add them using this form.