TY  - RPRT
        AU  - Poutvaara, Panu
AU  - Wagener, Andreas
        TI  - Why Is the Public Sector More Labor-Intensive? A Distortionary Tax Argument
        PY  - 2004/Nov/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 1413
        UR  - https://www.iza.org/publications/dp1413
        AB  - 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.
        KW  - taxation
KW  - public sector
KW  - labor intensity
        ER  -