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Public Services, Welfare, and Growth under Baumol's Cost Disease

Author

Listed:
  • Sasaki, Hiroaki
  • Mizutani, Aya
Abstract
This study presents a three-sector growth model that consists of manufacturing, private services, and public services, and examines the relationship between sectoral compositions and the tax rate. We identify an optimal tax rate that maximizes instantaneous utility. The optimal tax rate increases as manufacturing productivity increases, though it converges to a certain level that is less than unity.

Suggested Citation

  • Sasaki, Hiroaki & Mizutani, Aya, 2024. "Public Services, Welfare, and Growth under Baumol's Cost Disease," MPRA Paper 121693, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121693
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    File URL: https://mpra.ub.uni-muenchen.de/121693/1/MPRA_paper_121693.pdf
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    References listed on IDEAS

    as
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    6. Sasaki, Hiroaki, 2020. "Is growth declining in the service economy?," Structural Change and Economic Dynamics, Elsevier, vol. 53(C), pages 26-38.
    7. Torben M. Andersen & Claus T. Kreiner, 2017. "Baumol's Cost Disease and the Sustainability of the Welfare State," Economica, London School of Economics and Political Science, vol. 84(335), pages 417-429, July.
    8. Sasaki, Hiroaki, 2007. "The rise of service employment and its impact on aggregate productivity growth," Structural Change and Economic Dynamics, Elsevier, vol. 18(4), pages 438-459, December.
    9. Frederick van der Ploeg, 2007. "Sustainable Social Spending and Stagnant Public Services: Baumol's Cost Disease Revisited," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(4), pages 519-547, December.
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    11. R. C. Geary, 1950. "A Note on "A Constant-Utility Index of the Cost of Living"," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 18(1), pages 65-66.
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    More about this item

    Keywords

    public services; cost disease; optimal tax rate; growth disease;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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