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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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    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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