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On the cost of opportunistic behavior in the public sector: A General-Equilibrium approach

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  • Vasilev, Aleksandar

Abstract

This paper studies the wasteful effect of bureaucracy on the economy by addressing the link between opportunistic behavior of government bureaucrats and the public sector wage bill. In particular, public officials are modeled as individuals competing for a larger share of those public funds. A simple extraction technology in the government administration is introduced in a standard Real-Business-Cycle (RBC) setup augmented with detailed public sector. The model is calibrated to German data for the period 1970-2007. The main findings are: (i) the model performs well vis-a-vis the data; (ii) Due to the existence of a significant public sector wage premium and the high public sector employment, a substantial amount of working time is spent in opportunistic activities, which in turn leads to significant losses in terms of output; (iii) The model-based loss measures obtained for the EU-12 countries are highly-correlated to indices of bureaucratic inefficiency.

Suggested Citation

  • Vasilev, Aleksandar, 2016. "On the cost of opportunistic behavior in the public sector: A General-Equilibrium approach," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
  • Handle: RePEc:zbw:espost:146629
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    Cited by:

    1. Vasilev, Aleksandar, 2017. "VAT Evasion in Bulgaria: A General-Equilibrium Approach," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    2. Vasilev, Aleksandar, 2018. "Optimal fiscal policy in the presence of VAT evasion: the case of Bulgaria," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    3. Aleksandar Vasilev & Hristina Manolova, 2019. "Wage Dynamics and Bulgaria Co-Movement and Causality," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 17(1), pages 91-127.
    4. Vasilev, Aleksandar, 2019. "Taxation and welfare: measuring the effect of Bulgaria’s 2007-08 corporate-personal income tax reforms," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    rent-seeking; opportunism; public employment; government wages;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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