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On the cost of opportunistic behavior in the public sector: A General-Equilibrium approach

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  • Vasilev, Aleksandar

Abstract

This paper studies the wasteful effect of bureaucracy on the economy by addressing the link between opportunistic behavior of government bureaucrats and the public sector wage bill. In particular, public officials are modeled as individuals competing for a larger share of those public funds. A simple extraction technology in the gov- ernment administration is introduced in a standard Real-Business-Cycle (RBC) setup augmented with detailed public sector. The model is calibrated to German data for the period 1970-2007. The main findings are: (i) the model performs well vis-a-vis the data; (ii) Due to the existence of a significant public sector wage premium and the high public sector employment, a substantial amount of working time is spent in opportunistic activities, which in turn leads to significant losses in terms of output; (iii) The model-based loss measures obtained for the EU-12 countries are highly-correlated to indices of bureaucratic inefficiency.

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  • Vasilev, Aleksandar, 2016. "On the cost of opportunistic behavior in the public sector: A General-Equilibrium approach," EconStor Preprints 142465, ZBW - Leibniz Information Centre for Economics.
    • Handle: RePEc:zbw:esprep:142465
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    1. Vasilev, Aleksandar, 2022. "How Important Are Consumer Confidence Shocks for the Propagation of Business Cycles in Bulgaria?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 63(10-12), pages 589-603.
    2. Aleksandar Vasilev, 2017. "VAT Evasion in Bulgaria: A General-Equilibrium Approach," Review of Economics and Institutions, Università di Perugia, vol. 8(2).
    3. Vasilev, Aleksandar & Manolova, Hristina, 2019. "Wage Dynamics and Bulgaria: Co-movement and Causality," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 17(1), pages 91-127.
    4. Vasilev, Aleksandar, 2019. "Taxation and welfare: measuring the effect of Bulgaria’s 2007-08 corporate-personal income tax reforms," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    5. Aleksandar Vasilev, 2020. "A Real-business-cycle Model with a Stochastic Capital Share: Lessons for Bulgaria (1999–2018)," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(1), pages 107-121, February.
    6. Vasilev, Aleksandar, 2018. "Optimal fiscal policy in the presence of VAT evasion: the case of Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 68(4), pages 399-414.
    7. Vasilev Aleksandar, 2021. "A Real-Business-Cycle Model with Institutional Quality: The Case of Bulgaria (1999–2018)," Review of Economics, De Gruyter, vol. 72(1), pages 51-69, April.
    8. Ravi Radhakrishnan, 2022. "Public expenditure allocation, lobbying, and growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(4), pages 756-780, August.

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    More about this item

    Keywords

    rent-seeking; opportunism; bureaucracy; government emloyment and wages;
    All these keywords.

    JEL classification:

    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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