Bureaucracy, tax system, and economic performance

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This paper investigates the consequences for government size, growth and welfare if a selfish bureaucracy provides a congested input. Alternative exogenous tax systems are introduced and numerical analyses are carried out. The welfare optimum is only met under very specific assumptions: proportional congestion, a tax system only consisting of distortionary taxes and a bureaucracy that maximizes the budget's growth rate. Otherwise the relative size of the public sector becomes suboptimally large thus inducing welfare losses. From a welfare economic point of view bureaucratic selfishness is worse than a suboptimal taxing regime that does not (completely) internalize the congestion externalities.

Original languageEnglish
JournalJournal of Public Economic Theory
Volume8
Issue number5
Pages (from-to)839-862
Number of pages24
ISSN1097-3923
DOIs
Publication statusPublished - 01.12.2006

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