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Why Do Scandinavian Governments Employ So Many and the United States Government So Few?

Author

Listed:
  • Michael Lundholm
  • Hans Wijkander

Abstract

Is it a sheer coincidence that the egalitarian Scandinavian countries have significantly larger government employment shares than the much less egalitarian United States? A positive correlation between equality and government employment share in the OECD indicates that it is not a coincidence. We suggest a nonlinear relation between equality and government employment share. The reason is that significant redistribution creates labor supply distortions, which can be mitigated by government employment, which follows decision rules that are different from those in the private sector, and by large public production. This has potentially important implications for differences in wage dispersion and unemployment among OECD countries.

Suggested Citation

  • Michael Lundholm & Hans Wijkander, 2008. "Why Do Scandinavian Governments Employ So Many and the United States Government So Few?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(3), pages 364-379, September.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200809)64:3_364:wdsges_2.0.tx_2-u
    DOI: 10.1628/001522108X374188
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    References listed on IDEAS

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    1. repec:cup:apsrev:v:72:y:1978:i:04:p:1243-1261_15 is not listed on IDEAS
    2. Daron Acemoglu, 2006. "A Simple Model of Inefficient Institutions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 515-546, December.
    3. 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.
    4. Gregory, Robert G. & Borland, Jeff, 1999. "Recent developments in public sector labor markets," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 53, pages 3573-3630 Elsevier.
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    Cited by:

    1. Sebastian G. Kessing & Chiara Strozzi, 2012. "The Regional Distribution of Public Employment: Theory and Evidence," Center for Economic Research (RECent) 079, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".

    More about this item

    Keywords

    government; public-sector employment; scope of government; redistribution; production efficiency;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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