ISSN:
1435-8921
Keywords:
Key words: public sector
;
Laffer curve
;
threshold models
;
JEL classification: H11
;
J45
Source:
Springer Online Journal Archives 1860-2000
Topics:
Economics
Notes:
Abstract. 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.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1007/s001810000036
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