Is There a Laffer Curve Between Output and Public Sector Employment?Erkki Koskela and Matti Virén No 194, Discussion Papers from VATT Institute for Economic Research 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 and where public employment crowds out private employment and output via wage and tax effects. Also the valuation of government output is taken into account. While public employment affects total output and aggregate disposable income 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 gives support to this nonlinearity hypothesis between public employment and output. Keywords: Public sector; Laffer curve; threshold models; International comparisons; Kansainväliset vertailut; Labour market; Työmarkkinat; Taxation and Social Transfers; Julkisen talouden rahoitus ja tulonsiirrot; H110 - Structure; Scope; and Performance of Government; J450 - Public Sector Labor Markets (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fer:dpaper:194 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Discussion Papers from VATT Institute for Economic Research Contact information at EDIRC. |
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