Public Sector Efficiency and Fiscal Austerity

International Monetary Fund

No 1998/056, IMF Working Papers from International Monetary Fund

Abstract: This paper uses a simple model to analyze the forces that determine the size of the public sector and the quality of workers employed in that sector. Workers are heterogeneous, and the public sector chooses an employment strategy that maximizes a social welfare function U(s, Y) that depends on the share of the labor force employed in public service s and private sector output Y. The government is fully informed about worker productivity. By examining the welfare properties of the possible outcomes, we are able to illuminate situations in which policies that seek to constrain the public sector may or may not improve economic efficiency.

Keywords: WP; private sector; Governance; public sector; labor markets; private sector output; output net; worker productivity; output level; Public sector wages; Public employment; Labor force (search for similar items in EconPapers)
Pages: 24
Date: 1998-04-01
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Citations: View citations in EconPapers (7)

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