Can Labor Market Imperfections Cause Overprovision of Public Inputs?
2013 (English)In: Journal of Economic Research, Vol. 18, no 2, 135-146 p.Article in journal (Refereed) Published
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.
Public Inputs, Trade Unions
Research subject Economics
IdentifiersURN: urn:nbn:se:umu:diva-72749OAI: oai:DiVA.org:umu-72749DiVA: diva2:627181
FunderForte, Swedish Research Council for Health, Working Life and WelfareRiksbankens Jubileumsfond
Även utgiven i serien: Umeå Economic Studies, Department of Economics, Umeå University, No 858.2013-06-112013-06-112014-01-16Bibliographically approved