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Public Ownership and Income Redistribution

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  • Lundholm, Michael

    ()
    (Dept. of Economics, Stockholm University)

  • Wijkander, Hans

    ()
    (Dept. of Economics, Stockholm University)

Abstract

The large differences among advanced OECD countries in the shares of workers that are employed by the government can probably only to a small part be explained by factors that are in the center of modern organization theory explanations for public vs. private ownership. This paper explores a new hypothesis for explaining the share of government employment. It is based on asymmetric information about individual worker productivity between the taxman, and workers and their employers. Hence, government employment opens up policy options, not available with only private production. The hypothesis is that government employment is an efficient element of redistribution policy. The mechanism is that the government can, through its employment policy, increase the relative scarcity in the private sector of the workers the government wants to redistribute in favor of. That increases their wages and lowers the need for redistribution through the tax- and transfer systems, which mitigates distortions. One can therefore expect large government employment in countries where the tolerance of inequality is low.

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Bibliographic Info

Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2003:2.

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Length: 21 pages
Date of creation: 11 Sep 2002
Date of revision:
Handle: RePEc:hhs:sunrpe:2003_0002

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Keywords: Structure and Scope of Government; Optimal non-linear income taxation; public production; production efficiency;

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  1. Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
  2. Wittman, Donald, 1989. "Why Democracies Produce Efficient Results," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1395-1424, December.
  3. Tirole, J., 1993. "The Internal Organization of Government," Working papers 93-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1997. "Privatization in the United States," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 447-471, Autumn.
  5. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  6. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  7. N. S. Blomquist & U. Hansson-Brusewitz, 1990. "The Effect of Taxes on Male and Female Labor Supply in Sweden," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 317-357.
  8. Stiglitz, Joseph E & Dasgupta, P, 1971. "Differential Taxation, Public Goods and Economic Efficiency," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 151-74, April.
  9. John Vickers & George Yarrow, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-132, Spring.
  10. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  11. Naito, Hisahiro, 1999. "Re-examination of uniform commodity taxes under a non-linear income tax system and its implication for production efficiency," Journal of Public Economics, Elsevier, vol. 71(2), pages 165-188, February.
  12. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
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Cited by:
  1. Christian Velasquez-Donaldson, 2007. "Analysis of the Hydrocarbon Sector in Bolivia: How are the Gas and Oil Revenues Distributed?," Development Research Working Paper Series 06/2007, Institute for Advanced Development Studies.

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