Macroeconomic effects of cost savings in public procurement

Lukas Vogel

No 389, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: The paper analyses the macroeconomic gain from cost savings in public procurement in an extended version of QUEST III. Labour tax cuts in response to cost savings from cheaper procurement (0.5 pp mark-up decline per year over 10 years and 20% of procurement) raise GDP, employment and consumption by 0.1% after 5 and 0.1-0.2% after 50 years. Alternative policies, such as lower capital taxes and higher public investment, have comparable or stronger long-run GDP effects, lower or comparable consumption effects, and zero employment effects. Supply expansion under lower capital taxes and higher public investment derives from higher investment. Benefits are approximately linear to the size of cost savings and depend on key parameters, such as the elasticity of labour supply or the productivity of public capital.

Keywords: Public procurement; cost savings; macroeconomic benefits; taxation; public investment; aggregate supply; Vogel (search for similar items in EconPapers)
JEL-codes: E20 H31 H32 H40 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2009-11
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0389

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