abstract: 'We analyze the decision rules governing public employment policy,

  capital allocation between private and public sector, and the size of

  the public sector in a two-type and two-sector optimal nonlinear

  income-tax model with endogenous wages. The government can reduce wage

  inequality in the private sector by employing more unskilled workers and

  fewer skilled workers than is necessary to minimize cost at the

  prevailing gross wage rate and, if skilled labor and capital are

  complementary, by favoring public-sector capital accumulation.

  Therefore, production efficiency holds neither in public employment

  decision nor in capital allocation. The effects of public employment and

  investment on income inequality increase when the size of the public

  sector increases. The optimal size of the public sector is also shown to

  be relatively large when public employment and investments reduce wage

  inequality. These results help explain the growth in the public-sector

  size and why a larger government does not necessarily hamper growth.'
affiliation: 'Pirttila, J (Corresponding Author), Labour Inst Econ Res, Pitkansillanranta
  3 A, Helsinki 00530, Finland.

  Labour Inst Econ Res, Helsinki 00530, Finland.'
author: Pirttila, J and Tuomala, M
author-email: jukka.pirttila@labour.fi
author_list:
- family: Pirttila
  given: J
- family: Tuomala
  given: M
da: '2023-09-28'
doi: 10.1628/0015221053722505
files: []
issn: 0015-2218
journal: FINANZARCHIV
keywords: 'public production; redistribution; nonlinear taxation; production

  efficiency; the size of the government'
keywords-plus: 'MINIMUM-WAGE LEGISLATION; SELF-SELECTION; PRODUCTION EFFICIENCY; OPTIMAL

  TAXATION; INCOME TAXATION; POLICY; GOODS; PROVISION; GROWTH; DESIGN'
language: English
number: '1'
number-of-cited-references: '33'
pages: 120-137
papis_id: 0145a9737875c93e8e1869f7d3b29333
ref: Pirttila2005publicprivate
times-cited: '5'
title: 'Public versus private production decisions: Redistribution and the size of
  the public sector'
type: article
unique-id: WOS:000230640000006
usage-count-last-180-days: '0'
usage-count-since-2013: '0'
volume: '61'
web-of-science-categories: Business, Finance; Economics
year: '2005'