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

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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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    References listed on IDEAS

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    1. Michael Keen & Christos Kotsogiannis, 2003. "Leviathan and Capital Tax Competition in Federations," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 5(2), pages 177-199, April.
    2. Francisco de Castro & Matteo Salto & Hugo Steiner, 2013. "The gap between public and private wages: new evidence for the EU," European Economy - Economic Papers 2008 - 2015 508, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Andrews, Matthew & Duncombe, William & Yinger, John, 2002. "Revisiting economies of size in American education: are we any closer to a consensus?," Economics of Education Review, Elsevier, vol. 21(3), pages 245-262, June.
    4. Eggert, Wolfgang & Sørensen, Peter Birch, 2008. "The effects of tax competition when politicians create rents to buy political support," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1142-1163, June.
    5. Paul W. Wilson & Kathleen Carey, 2004. "Nonparametric analysis of returns to scale in the US hospital industry," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(4), pages 505-524.
    6. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 52(2), pages 269-304, June.
    7. Fuest, Clemens, 2000. "The Political Economy of Tax Coordination as a Bargaining Game between Bureaucrats and Politicians," Public Choice, Springer, vol. 103(3-4), pages 357-382, June.
    8. Stephen Ansolabehere & James M. Snyder, 2006. "Party Control of State Government and the Distribution of Public Expenditures," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 547-569, December.
    9. Wilson, John Douglas, 1999. "Theories of Tax Competition," National Tax Journal, National Tax Association, vol. 52(n. 2), pages 269-304, June.
    10. Zodrow, George R. & Mieszkowski, Peter, 1986. "Pigou, Tiebout, property taxation, and the underprovision of local public goods," Journal of Urban Economics, Elsevier, vol. 19(3), pages 356-370, May.
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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

    Tax competition; Lobbying; Probabilistic voting; Austria;

    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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