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Can Labor Market Imperfections Cause Overprovision of Public Inputs?
Department of Economics, University Pablo de Olavide, E - 41013 Sevilla, Spain, .
Umeå University, Faculty of Social Sciences, Department of Economics.
2013 (English)In: Journal of Economic Research, Vol. 18, no 2, 135-146 p.Article in journal (Refereed) Published
Abstract [en]

This paper concerns provision of productive public inputs in the presence of unemployment. It is shown that if the government is able to implement optimal taxes on labor income and profit income, respectively, then the public input will be underprovided. On the other hand, if the government is not able to implement an optimal tax on labor income, e.g. because the labor income tax is determined at another level in the public sector (e.g. the municipal or the state level), then overprovision may occur. We derive an equation which links overprovision of the public input to (i) the employment rate and to (ii) the deviation of the actual labor income tax from the optimal level.

Place, publisher, year, edition, pages
Journal of Economic Research , 2013. Vol. 18, no 2, 135-146 p.
Keyword [en]
Public Inputs, Trade Unions
National Category
Research subject
URN: urn:nbn:se:umu:diva-72749OAI: diva2:627181
Forte, Swedish Research Council for Health, Working Life and WelfareRiksbankens Jubileumsfond

Även utgiven i serien: Umeå Economic Studies, Department of Economics, Umeå University, No 858.

Available from: 2013-06-11 Created: 2013-06-11 Last updated: 2014-01-16Bibliographically approved

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