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Can Public Sector Wage Bills Be Reduced?

In: Fiscal Policy after the Financial Crisis


  • Pierre Cahuc
  • Stéphane Carcillo


This paper analyzes the relation between public wage bills and public deficits in the OECD countries from 1995 to 2009. The paper shows that fiscal drift episodes, characterized by simultaneous increases in the GDP shares of public wage bills and budget deficits, are more frequent during booms and election years, but not during recessions, except for the 2009 exceptionally strong recession. The emergence of fiscal drift episodes during booms and election years is less frequent in countries with more transparent government, more freedom of the press, as well as in countries with presidential regimes and less union coverage. Inversely, fiscal tightening episodes, characterized by simultaneous decreases in the GDP shares of public wage bills and budget deficits, occur less often during booms than during recessions. The emergence of fiscal tightening episodes during recessions and election years is less frequent in countries with more union coverage.
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Suggested Citation

  • Pierre Cahuc & Stéphane Carcillo, 2012. "Can Public Sector Wage Bills Be Reduced?," NBER Chapters,in: Fiscal Policy after the Financial Crisis, pages 359-402 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:12648

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    References listed on IDEAS

    1. Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, September.
    2. Marco Battaglini & Stephen Coate, 2008. "A Dynamic Theory of Public Spending, Taxation, and Debt," American Economic Review, American Economic Association, vol. 98(1), pages 201-236, March.
    3. Adi Brender & Allan Drazen, 2008. "How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries," American Economic Review, American Economic Association, vol. 98(5), pages 2203-2220, December.
    4. Shi, Min & Svensson, Jakob, 2006. "Political budget cycles: Do they differ across countries and why?," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1367-1389, September.
    5. Alessandro Gavazza & Alessandro Lizzeri, 2009. "Transparency and Economic Policy," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 1023-1048.
    6. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
    7. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
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    Cited by:

    1. repec:eee:poleco:v:48:y:2017:i:c:p:128-143 is not listed on IDEAS
    2. repec:wsi:serxxx:v:59:y:2014:i:04:n:s0217590814500325 is not listed on IDEAS
    3. Asatryan, Zareh & Heinemann, Friedrich & Pitlik, Hans, 2017. "Reforming the public administration: The role of crisis and the power of bureaucracy," European Journal of Political Economy, Elsevier, vol. 48(C), pages 128-143.
    4. Hans Pitlik, 2017. "Austria 2025 – Public Administration Reform Between the Quest for Efficiency and Resistance to Change. A Survey," WIFO Monatsberichte (monthly reports), WIFO, vol. 90(3), pages 205-217, March.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets


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