The welfare state and Baumol’s law

Martin Paldam

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: The paper considers a two-sector economy with a constant population: The public sector, with stable productivity, and a private sector, with productivity growth. Baumol’s law says that such an economy has no steady state. It is demonstrated what this means. Two attempts to uphold a policy that fixes a key ratio are discussed: One policy fixes the tax share - this causes the share of the real public sector to vanish. The other policy fixes the share of real public production - this causes the tax pressure to keep rising.

Keywords: Welfare state; steady state growth (search for similar items in EconPapers)
JEL-codes: H11 H5 O41 (search for similar items in EconPapers)
Pages: 16
Date: 2009-03-24
New Economics Papers: this item is included in nep-pub
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2009-05

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