Why Is the Public Sector More Labor-Intensive? A Distortionary Tax Argument 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 effici...

Why Is the Public Sector More Labor-Intensive? A Distortionary Tax Argument 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 effici...

We provide a multiperiod model of political competition in which voters imperfectly observe the electoral promises made to other voters. Imperfect observability generates an incentive for candidates to offer excessive transfers even if voters are homogeneous and taxation is distortionary. Government spending is larger than in a world of perfect observability. Transfers are partly financed throu...

This article examines the taxation of property in residential market as a potential revenue-raising tool public finance. Economists generally consider taxing to be less distortionary than other tax bases. It ranks well terms trade-offs across long-term growth and inequality considerations. Although countries have different societal preferences, recourse is not widespread. Using panel data metho...

How does the size of the transfer system evolve in the short and in the long run? We model income redistribution as determined by voting among individuals of different types and income realizations. Taxation is distortionary because it discourages effort to accumulate human capital. Voters are fully rational, realizing that transfers have implications also for future economic decisions and taxa...

I develop a novel link between frictions in international financial markets and fiscal procyclicality. Complementing existing evidence, A decomposition of government expenditure into social spending and public good spending reveals that the cyclical correlation of social spending exhibits the biggest differences across countries. I build a small open economy model with income inequality, endoge...

[Abstract] Is tax evasion beneficial or harmful to growth? We approach this question by extending Persson and Tabellini’s (1994) growth model to a plausible world where individuals differ not only in terms of their skill in earning income but also in terms of their skill in concealing income from the tax authority. The Persson-Tabellini model identifies a fundamental tradeoff for redistribution...

This paper investigates the effect of local property tax for businesses on firm performance by using a panel Italian manufacturing firms. To identify this effect, we implement pairwise spatial-differenced estimator and exploit exogenous variation in rates caused political alignment central governments. We find that business taxation has sizeable negative impact equipment, more volatile part tan...

Taking into account that within the government sector all tax payments cancel out, a public enterprise in an economy with distortionary wage taxation will be more labor intensive than a private firm. However, an unequal tax treatment of public and private sectors distorts away the economy from production efficiency. In a general equilibrium model, incurring this inefficiency is worthwhile from ...