Is There a Laffer Curve Between Output and Public Sector Employment?
AbstractThis paper develops a model of the relationship between public sector employment, total output and aggregate real demand in market prices, where public employment has a positive productivity effect on private output and where public employment crowds out private employment and output via wage and tax effects. Also the valuation of government output is taken into account. While public employment affects total output and aggregate disposable income in an a priori ambiguous way, numerical simulations suggest that the relationship may be nonlinear; positive, when public sector is "small" and negative when it is "large". Using the annual data from 22 OECD countries over the period 1960 - 1996 and estimating and testing for threshold models gives support to this nonlinearity hypothesis between public employment and output.
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Bibliographic InfoPaper provided by Government Institute for Economic Research Finland (VATT) in its series Discussion Papers with number 194.
Date of creation: 01 Jan 1999
Date of revision:
Find related papers by JEL classification:
- J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
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