Why is the public sector more labor-intensive? A distortionary tax argument
A relatively high labor-intensity in government-run entities need not imply slack in their organization. Rather, it is a rational reaction to various forms of wage tax advantage that the public sector has over private firms. Even though an unequal tax treatment of public and private sectors precludes production efficiency, it may improve welfare by mitigating the labor supply distortion. With inelastic labor supply, privatizing a previously government-run sector improves welfare, while with elastic labor supply a full outsourcing of government activities can never be optimal if it goes along with a decrease in net wages.
(This abstract was borrowed from another version of this item.)
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.:
- European Commission, 2010. "Taxation trends in the European Union: 2010 edition," Taxation trends 2010, Directorate General Taxation and Customs Union, European Commission.
- Corneo, Giacomo & Rob, Rafael, 2003.
"Working in public and private firms,"
Journal of Public Economics,
Elsevier, vol. 87(7-8), pages 1335-1352, August.
- Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
- M.C. Wassenaar & R.H.J.M. Gradus, 2004. "Contracting out: The Importance of a Solution for the VAT Distortion," CESifo Economic Studies, CESifo, vol. 50(2), pages 377-396.
- Paul H. Malatesta & Kathryn L. DeWenter, 2001. "State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity," American Economic Review, American Economic Association, vol. 91(1), pages 320-334, March.
- Jesus Felipe & Franklin M. Fisher, 2003. "Aggregation in Production Functions: What Applied Economists should Know," Metroeconomica, Wiley Blackwell, vol. 54(2-3), pages 208-262, 05.
- Andrei Shleifer, 1998.
"State versus Private Ownership,"
Journal of Economic Perspectives,
American Economic Association, vol. 12(4), pages 133-150, Fall.
- Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
- Andrei Shleifer, 1998. "State Versus Private Ownership," NBER Working Papers 6665, National Bureau of Economic Research, Inc.
- Gordon, Roger H. & Bai, Chong-En & Li, David D., 1999. "Efficiency losses from tax distortions vs. government control," European Economic Review, Elsevier, vol. 43(4-6), pages 1095-1103, April.
- Partha Dasgupta & Joseph Stiglitz, 1972. "On Optimal Taxation and Public Production," Review of Economic Studies, Oxford University Press, vol. 39(1), pages 87-103.
- Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, vol. 61(1), pages 8-27, March.
- Alberto Alesina & Reza Baqir & William Easterly, 1998.
"Redistributive Public Employment,"
NBER Working Papers
6746, National Bureau of Economic Research, Inc.
- Rafael La Porta & Florencio López-de-Silanes, 1999. "The Benefits of Privatization: Evidence from Mexico," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1193-1242.
- European Commission, 2006. "Taxation trends in the European Union: 2006 edition," Taxation trends 2006, Directorate General Taxation and Customs Union, European Commission.
- Gordon, Roger H, 2001. "Taxes and Privatization," CEPR Discussion Papers 2977, C.E.P.R. Discussion Papers.
- Kotsogiannis, Christos & Makris, Miltiadis, 2002. "On production efficiency in federal systems," Economics Letters, Elsevier, vol. 76(2), pages 281-287, July.
- Takayama,Akira, 1985. "Mathematical Economics," Cambridge Books, Cambridge University Press, number 9780521314985, June.
- De Fraja, Giovanni, 1993. "Productive efficiency in public and private firms," Journal of Public Economics, Elsevier, vol. 50(1), pages 15-30, January.
When requesting a correction, please mention this item's handle: RePEc:kap:jeczfn:v:94:y:2008:i:2:p:105-124. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.