Why is the public sector more labor-intensive? A distortionary tax argument

Poutvaara, Panu and Wagener, Andreas (2008): Why is the public sector more labor-intensive? A distortionary tax argument. In: Journal of Economics / Zeitschrift für Nationalökonomie, Vol. 94, No. 2: pp. 105-124

Abstract

Government-run entities are often more labor-intensive than private companies, even with identical production technologies. This need not imply slack in the public sector, but may reflect a wage tax advantage, stemming from the fact that government entities (partly) pay their taxes to themselves. A tax-induced cost advantage of public production precludes production efficiency and reduces welfare when labor supply is inelastic. With an elastic labor supply, a wage tax advantage of the public sector may improve welfare if it allows for a higher net wage.

• Item Type: Journal article
• Faculties: Economics; Economics > Chairs > CESifo-Professorship for International Institutional Comparisons
• Subjects: 300 Social sciences > 330 Economics
• Language: English