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Why is the public sector more labor-intensive? A distortionary tax argument

Panu Poutvaara () and Andreas Wagener

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: Government-run entities are often more labor-intensive than private companies, even with identical production technologies. This need not imply slack in the public sector, but may reflect a wage tax advantage, stemming from the fact that government entities (partly) pay their taxes to themselves. A tax-induced cost advantage of public production precludes production efficiency and reduces welfare when labor supply is inelastic. With an elastic labor supply, a wage tax advantage of the public sector may improve welfare if it allows for a higher net wage.

Date: 2008
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Published in Journal of Economics / Zeitschrift für Nationalökonomie 2 94(2008): pp. 105-124

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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 (2004) Downloads
Working Paper: Why Is the Public Sector More Labor-Intensive? A Distortionary Tax Argument (2004) Downloads
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