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

Michael Christl and Monika Köppl–Turyna ()
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Monika Köppl–Turyna: Agenda Austria
Authors registered in the RePEc Author Service: Monika Irena Köppl-Turyna

Empirica, 2018, vol. 45, issue 3, No 8, 607-638

Abstract: Abstract In this work, we simulate the effects of the 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 a reduction of employment in the public sector of between 25 and 35% of the current level. We also show that tax autonomy increases welfare levels by 1–1.5%; that is, the positive change in the disposable income of the workers more than offsets the welfare loss resulting from the lower provision of public goods. Finally, we show that the reduction of public employment is superior in terms of welfare to an alternative scenario in which employment levels are held constant but the wage levels in the public sector are adjusted.

Keywords: Tax competition; Lobbying; Probabilistic voting; Austria (search for similar items in EconPapers)
JEL-codes: D72 H71 H77 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Tax competition and the political economy of public employment: a model for Austria (2017)
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DOI: 10.1007/s10663-017-9379-1

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