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Tax competition and the political economy of public employment: a model for Austria

Author

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  • Christl, Michael
  • Köppl-Turyna, Monika

Abstract

In this work we simulate the effects of tax autonomy of the Austrian states on the levels of public employment in each state. We show that depending on the strength of the public sector lobby, tax autonomy would require reduction of employment in the public sector between 25% and 35% of the current level. We also show that tax autonomy increases welfare levels by 1% to 1.5%, that is that the positive change in the disposable income of the workers more than offsets the welfare loss resulting from lower public goods‘ provision. Finally, we show that reduction of public employment is welfare-superior to an alternative scenario, in which employment levels are held constant but the wage levels in the public sector need to be adjusted.

Suggested Citation

  • Christl, Michael & Köppl-Turyna, Monika, 2017. "Tax competition and the political economy of public employment: a model for Austria," Working Papers 04, Agenda Austria.
    • Handle: RePEc:zbw:agawps:04
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    File URL: https://www.econstor.eu/bitstream/10419/163561/1/agenda-austria-wp-04.pdf
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    Cited by:

    1. Köppl-Turyna, Monika & Kucsera, Dénes & Neck, Reinhard, 2017. "Growth of public consumption in Austria: Testing Wagner's law and Baumol's cost disease," Working Papers 10, Agenda Austria.

    More about this item

    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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