Why Is the Public Sector More Labor-Intensive? : A Distortionary Tax Argument

Arbeitspapier

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 be a rational response to its wage tax advantage over private firms. A tax-favored treatment of public production precludes production efficiency. It reduces welfare when labor supply is constant. With an elastic labor supply, a wage tax advantage of the public sector may improve welfare if it allows for a higher net wage. This would counteract the distortion of labor supply arising from wage taxation. Full privatization is never optimal if the labor supply elasticity is positive but small.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 1413

Classification and Topics

• Classification: Wirtschaft ; Comparison of Public and Private Enterprises and Nonprofit Institutions; Privatization; Contracting Out ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity ; Public Sector Labor Markets
• Subject: public sector ; labor intensity ; taxation ; Öffentlicher Sektor ; Arbeitsintensität ; Lohnsteuer ; Steuerbelastung ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Poutvaara, Panu ; Wagener, Andreas
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/20711
• Last update: 10.03.2025, 11:42 AM CET