IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Excess burden and the cost of inefficiency in public services provision

  • Afonso, António
  • Gaspar, Vítor

In this paper we revisit the literature on the economic consequences from inefficiency in public services provision. Following Dupuit (1844) and Pigou (1947) we argue that it is important to take the financing side explicitly into account. The fact that public expenditure financing must rely on distortional taxation implies that both direct and indirect costs are relevant when estimating the economic impacts of inefficiency in public services provision. Using Hicks’ compensating variation (following Diamond and McFadden (1974) and Auerbach (1985)) we show that these magnification mechanisms are not only conceptually relevant, they are also important from a quantitative point of view. Specifically, we rely on a range of estimates of public sector efficiency (from Afonso, Schuknecht and Tanzi (2005, 2006)) to illustrate numerically that the relative importance of indirect costs of public sector provision inefficiency, linked to financing through distortional taxation increases with the magnitude of the inefficiency. JEL Classification: D11, E62, H21, H50

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp601.pdf
Download Restriction: no

Paper provided by European Central Bank in its series Working Paper Series with number 0601.

as
in new window

Length:
Date of creation: Apr 2006
Date of revision:
Handle: RePEc:ecb:ecbwps:20060601
Contact details of provider: Postal: 60640 Frankfurt am Main, Germany
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Afonso, António & St. Aubyn, Miguel, 2005. "Cross-country efficiency of secondary education provision: a semi-parametric analysis with non-discretionary inputs," Working Paper Series 0494, European Central Bank.
  2. Alan J. Auerbach, 1982. "The Theory of Excess Burden and Optimal Taxation," NBER Working Papers 1025, National Bureau of Economic Research, Inc.
  3. Afonso, António & Schuknecht, Ludger & Tanzi, Vito, 2006. "Public sector efficiency: evidence for new EU member states and emerging markets," Working Paper Series 0581, European Central Bank.
  4. António Afonso & Ludger Schuknecht & Vito Tanzi, 2005. "Public sector efficiency: An international comparison," Public Choice, Springer, vol. 123(3), pages 321-347, June.
  5. repec:cup:cbooks:9780521662918 is not listed on IDEAS
  6. Diamond, P. A. & McFadden, D. L., 1974. "Some uses of the expenditure function in public finance," Journal of Public Economics, Elsevier, vol. 3(1), pages 3-21, February.
  7. António Afonso & Miguel St. Aubyn, 2005. "Non-parametric approaches to education and health efficiency in OECD countries," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 227-246, November.
  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. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13.
  10. Atkinson, Anthony B & Stern, N H, 1974. "Pigou, Taxation and Public Goods," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 119-28, January.
  11. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
  12. Peter A. Diamond & J. A. Mirrlees, 1968. "Optimal Taxation and Public Production," Working papers 22, Massachusetts Institute of Technology (MIT), Department of Economics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20060601. 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: (Official Publications)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.