Sustainable Social Spending and Stagnant Public Services: Baumol's Cost Disease Revisited
AbstractIf demand for human services is inelastic or manufactured goods are necessities, labour shifts from manufacturing to services and the budget share of services rises. Higher productivity growth in the market sector pushes up the tax rate and public employment if private goods and public services are poor substitutes, labour supply is inelastic and there are few dependants. Otherwise, private affluence and public squalor result. More dependants boost public employment if the market provides poor substitutes, but public services per dependent may fall due to tax base erosion. Extensions to market and public employment being imperfect substitutes, varying utility of money and public sector productivity depends on pay.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2007/34.
Date of creation: 2007
Date of revision:
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Baumol's cost disease; Wagner's law; congestion; cost of public funds; dependency ratio;
Other versions of this item:
- Frederick van der Ploeg, 2007. "Sustainable Social Spending and Stagnant Public Services: Baumol's Cost Disease Revisited," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(4), pages 519-547, December.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H0 - Public Economics - - General
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J4 - Labor and Demographic Economics - - Particular Labor Markets
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-10 (All new papers)
- NEP-MAC-2007-11-10 (Macroeconomics)
- NEP-PBE-2007-11-10 (Public Economics)
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