Baumol?s cost disease and the sustainability of the welfare state

Torben M Andersen and Claus Kreiner

No 9772, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: If productivity increases more slowly for services than for manufactured goods, then services suffer from Baumol?s cost disease and tend to become relatively more costly over time. Since the welfare state in all countries is an important supplier of tax financed services, this translates into a financial pressure which seems to leave policymakers with a trilemma; increase taxes (and hence tax distortions), cut spending or redistribute less. Under the assumptions underlying Baumol?s cost disease, we show that these dismal implications are not warranted. The welfare state is sustainable and Baumol growth leaves scope for Pareto improvements.

Keywords: Welfare state sustainability; Publicly provided goods; Redistribution; Tax distortions (search for similar items in EconPapers)
JEL-codes: H21 H4 H5 (search for similar items in EconPapers)
Date: 2013-12
New Economics Papers: this item is included in nep-gro and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP9772 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Baumol's Cost Disease and the Sustainability of the Welfare State (2017)
Working Paper: Baumol’s cost disease and the sustainability of the welfare state (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:9772

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP9772
orders@cepr.org

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by (repec@cepr.org).