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Why is the Public Sector More Labor-Intensive? A Distortionary Tax Argument

Panu Poutvaara () and Andreas Wagener

No 1259, CESifo Working Paper Series from CESifo

Abstract: A relatively high labor-intensity in government-run entities need not imply slack in their organization. Rather, it is a rational reaction to various forms of wage tax advantage that the public sector has over private firms. Even though an unequal tax treatment of public and private sectors precludes production efficiency, it may improve welfare by mitigating the labor supply distortion. With inelastic labor supply, privatizing a previously government-run sector improves welfare, while with elastic labor supply a full outsourcing of government activities can never be optimal if it goes along with a decrease in net wages.

Keywords: public sector; labor intensity; taxation (search for similar items in EconPapers)
JEL-codes: D24 H21 L33 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-mic, nep-pbe and nep-pub
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Related works:
Journal Article: Why is the public sector more labor-intensive? A distortionary tax argument (2008) Downloads
Working Paper: Why is the public sector more labor-intensive? A distortionary tax argument (2008)
Working Paper: Why Is the Public Sector More Labor-Intensive? A Distortionary Tax Argument (2004) Downloads
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