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Macroeconomic effects of cost savings in public procurement

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  • Lukas VOGEL

Abstract

The paper analyses the macroeconomic gain from cost savings in public procurement in an extended version of QUEST III. Labour tax cuts in response to cost savings from cheaper procurement (0.5 pp mark-up decline per year over 10 years and 20% of procurement) raise GDP, employment and consumption by 0.1% after 5 and 0.1-0.2% after 50 years. Alternative policies, such as lower capital taxes and higher public investment, have comparable or stronger long-run GDP effects, lower or comparable consumption effects, and zero employment effects. Supply expansion under lower capital taxes and higher public investment derives from higher investment. Benefits are approximately linear to the size of cost savings and depend on key parameters, such as the elasticity of labour supply or the productivity of public capital.

Suggested Citation

  • Lukas VOGEL, 2009. "Macroeconomic effects of cost savings in public procurement," European Economy - Economic Papers 2008 - 2015 389, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  • Handle: RePEc:euf:ecopap:0389
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    Cited by:

    1. Pelkmans, Jacques & Lejour, Arjan & Schrefler, Lorna & Mustilli, Federica & Timini, Jacopo, 2014. "The Impact of TTIP: The underlying economic model and comparisons," CEPS Papers 9710, Centre for European Policy Studies.
    2. Arthur Korus, 2016. "Innovationsorientierte öffentliche Beschaffung und Leitmärkte: Politische Initiativen in der EU," EIIW Discussion paper disbei228, Universitätsbibliothek Wuppertal, University Library.

    More about this item

    Keywords

    Public procurement; cost savings; macroeconomic benefits; taxation; public investment; aggregate supply; Vogel;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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