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Bureaucracy, Tax System, and Economic Performance

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  • INGRID OTT

Abstract

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.

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  • Ingrid Ott, 2006. "Bureaucracy, Tax System, and Economic Performance," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(5), pages 839-862, December.
    • Handle: RePEc:bla:jpbect:v:8:y:2006:i:5:p:839-862
    DOI: 10.1111/j.1467-9779.2006.00291.x
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    1. Tanzi,Vito & Schuknecht,Ludger, 2000. "Public Spending in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521662918, October.
    2. Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185, October.
    3. Daron Acemoglu, 2006. "Modeling Inefficient Institutions," NBER Working Papers 11940, National Bureau of Economic Research, Inc.
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