Is there a Laffer curve between aggregate output and public sector employment?

Arbeitspapier

This paper develops a model of the relationship between public sector employment, total output and aggregate real demand in market prices, where public employment has a positive productivity effect on private output. Public employment crowds out private employment and output because its increase induces higher wages and taxes. The valuation of government output is also taken into account. While public employment affects total output and aggregate real demand in an a priori ambiguous way, numerical simulations suggest that the relationship may be nonlinear; positive, when public sector is “small” and negative when it is “large”. Using the annual data from 22 OECD countries over the period 1960–1996 and estimating and testing for threshold models and more commonly used specifications with multiplicative interaction terms give support to this nonlinearity hypothesis between public employment and private sector output.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ETLA Discussion Papers ; No. 737

Classification and Topics

• Classification: Wirtschaft ; Structure, Scope, and Performance of Government ; Public Sector Labor Markets ; Labor Force and Employment, Size, and Structure
• Subject: public sector ; Laffer curve ; threshold models ; julkisen sektorin koko ; Laffer-käyrä ; kynnysmallit ; Laffer-Kurve ; Öffentlicher Sektor ; Öffentlicher Dienst ; Gesamtwirtschaftliche Produktion ; OECD-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Koskela, Erkki ; Virén, Matti
• Event: Veröffentlichung
• (who): The Research Institute of the Finnish Economy (ETLA)
• (where): Helsinki
• (when): 2000

Further information

• Handle: http://hdl.handle.net/10419/63764
• Last update: 10.03.2025, 11:42 AM CET