Does the Public Sector Implode From Baumol's Cost Disease?

Andersen, Torben M.

doi:10.1111/ecin.12304

Cited by 4 publications

(4 citation statements)

References 21 publications

(24 reference statements)

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“…In addition, recent theoretical studies have shown that the observed empirical tendency in industrialized economies leading to a higher share of the labor force employed in the provision of services (one of the consequences of Baumol's effect, as in Baumol, 1967Baumol, , 1993 might not be at all detrimental to the sustainability of large welfare states. In more detail, taking into account individual responses to tax-financed service provision, Andersen (2016) and Andersen and Kreiner (2016) show that, under standard assumptions on preferences and labor supply, Baumol's effect will neither lead to a higher share of GDP devoted to public expenditure, nor to a higher optimal tax rate.…”

Section: Ageing Automation and The Sustainability Of Welfare Statesmentioning

confidence: 99%

The Nordic Model of Economic Development: Shocks, Reforms and Future Prospects

Iacono¹

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractThe aim of this research is to provide novel evidence regarding the functioning of the Nordic model of economic development and the robustness of its institutions. At first, the paper defines a conceptual analytical framework identifying the key features of the model for the Nordic economies (Denmark, Finland, Norway, and Sweden), by synthesizing relevant background literature. Secondly, this framework is used to interpret a set of shocks, reforms and ongoing trends: the effect of resource revenues on the labor market and income inequality in Norway compared to the other Nordic countries; the design of a novel minimum income scheme in Finland and its effects on preferences for social insurance; and the implications of population ageing and increased automation for indicators of sustainability for the Nordic welfare states.

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Section: Ageing Automation and The Sustainability Of Welfare Statesmentioning

confidence: 99%

The Nordic Model of Economic Development: Shocks, Reforms and Future Prospects

Iacono¹

2017

SSRN Journal

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“…Ngai and Pissarides (2007) show that stagnation does not follow when allowing for capital inputs in both production of manufactures and services. In Andersen (2016) it is shown that the expenditure share is bounded above when allowing for services provided by both the public sector and the private sector.…”

Section: Acknowledgmentsmentioning

confidence: 99%

Baumol's Cost Disease and the Sustainability of the Welfare State

Andersen

Kreiner

2016

Economica

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractIf productivity increases more slowly for services than for manufactured goods then services suffer from Baumol's cost disease and tend to become relatively more costly over time. Since the welfare state in all countries is an important supplier of tax financed services, this translates into a financial pressure which seems to leave policymakers with a trilemma; increase taxes (and hence tax distortions), cut spending or redistribute less. Under the assumptions underlying Baumol's cost disease, we show that these dismal implications are not warranted. The welfare state is sustainable and Baumol growth leaves scope for Pareto improvements. * We are grateful to Peter Birch Sørensen for comments on an earlier draft. Contact info: ctk@econ.ku.dk (Claus T. Kreiner) and tandersen@econ.au.dk (Torben M. Andersen).

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“…See the analysis of restaurant and cafes in Section 6. 2 The view that the cost disease is a threat to the welfare state is challenged in theoretical contributions by Andersen (2016) and Andersen and Kreiner (2017). political fragmentation has contributed to relative price growth in the public sector.…”

Section: Introductionmentioning

confidence: 99%

Cost disease in defense and public administration: Baumol and politics

et al. 2018

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William Baumol's model predicts a steady increase in relative public sector prices (or costs) because of the combination of slow productivity growth and wage growth similar to sectors wherein productivity is growing more quickly. In this paper, we extend the Baumol model with political variables and analyze price growth in defense and public administration using Norwegian data. We find strong support for the mechanism of the Baumol model since manufacturing productivity is the most important determinant of relative public-sector prices. Greater political fragmentation has also contributed to the price growth, but its quantitative effect is smaller than that of manufacturing productivity. An analysis of a labor-intensive private service (restaurants and cafes) supports the broader relevance of the Baumol mechanism and the validity of the estimated effect of political fragmentation on the two sectors considered herein.

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Does the Public Sector Implode From Baumol's Cost Disease?

Cited by 4 publications

References 21 publications

The Nordic Model of Economic Development: Shocks, Reforms and Future Prospects

The Nordic Model of Economic Development: Shocks, Reforms and Future Prospects

Baumol's Cost Disease and the Sustainability of the Welfare State

Cost disease in defense and public administration: Baumol and politics

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