Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/20711 
Year of Publication: 
2004
Series/Report no.: 
IZA Discussion Papers No. 1413
Publisher: 
Institute for the Study of Labor (IZA), Bonn
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 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.
Subjects: 
public sector
labor intensity
taxation
JEL: 
L33
H21
D24
J45
Document Type: 
Working Paper

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