Why is the Public Sector More Labor - Intensive ?
نویسندگان
چکیده
Taking into account that within the government sector all tax payments cancel out, a public enterprise in an economy with distortionary wage taxation will be more labor intensive than a private firm. However, an unequal tax treatment of public and private sectors distorts away the economy from production efficiency. In a general equilibrium model, incurring this inefficiency is worthwhile from a welfare perspective if and only if it is more than offset by a sufficient reduction in the distortion of labor supply. Specifically, with inelastic labor supply privatizing a previously government-run sector improves welfare while with elastic labor supply the full outsourcing of government activities can never be optimal if it goes along with a decrease in net wages. JEL-classification: L33, D24, H21.
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