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Title:Why is the public sector more labor-intensive? PDF Logo
Authors:Poutvaara, Panu
Wagener, Andreas
Issue Date:2004
Series/Report no.:CESifo working papers 1259
Abstract:A relatively high labor-intensity in government-run entities need not imply slack in their organization. Rather, it is a rational reaction to various forms of wage tax advantage that the public sector has over private firms. Even though an unequal tax treatment of public and private sectors precludes production efficiency, it may improve welfare by mitigating the labor supply distortion. With inelastic labor supply, privatizing a previously government-run sector improves welfare, while with elastic labor supply a full outsourcing of government activities can never be optimal if it goes along with a decrease in net wages.
Subjects:public sector
labor intensity
taxation
JEL:H21
D24
L33
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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