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Empirica

, Volume 45, Issue 3, pp 607–638 | Cite as

Tax competition and the political economy of public employment: a model for Austria

  • Michael Christl
  • Monika Köppl–Turyna
Original Paper

Abstract

In this work, we simulate the effects of the tax autonomy of the Austrian states on the levels of public employment in each state. We show that depending on the strength of the public sector lobby, tax autonomy would require a reduction of employment in the public sector of between 25 and 35% of the current level. We also show that tax autonomy increases welfare levels by 1–1.5%; that is, the positive change in the disposable income of the workers more than offsets the welfare loss resulting from the lower provision of public goods. Finally, we show that the reduction of public employment is superior in terms of welfare to an alternative scenario in which employment levels are held constant but the wage levels in the public sector are adjusted.

Keywords

Tax competition Lobbying Probabilistic voting Austria 

JEL Classification

D72 H71 H77 

Notes

Acknowledgements

We gratefully acknowledge suggestions from the editor and the anonymous referees, which have significantly improved the paper. We also gratefully acknowledge the suggestions and advice of Laurenz Ennser-Jedenastik, Gerhard Reitschuler, participants in the 2016 Annual Meeting of the Austrian Economic Association and our colleagues who contributed to previous versions of this manuscript.

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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.Agenda AustriaViennaAustria

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