The Welfare State and Baumol's Law

Paldam, Martin

doi:10.2139/ssrn.1367515

Abstract

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The Welfare State and Baumol's Law

Martin Paldam

University of Aarhus - Department of Economics

March 24, 2009

Univ. of Aarhus Economics Working Paper No. 2009-5

Abstract:
The paper considers a two-sector economy with a constant population: The public sector, with stable productivity, and a private sector, with productivity growth. Baumol's law says that such an economy has no steady state. It is demonstrated what this means. Two attempts to uphold a policy that fixes a key ratio are discussed: One policy fixes the tax share - this causes the share of the real public sector to vanish. The other policy fixes the share of real public production - this causes the tax pressure to keep rising.

Number of Pages in PDF File: 18

Keywords: Welfare state, steady state growth

JEL Classification: H5, H11, O41

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Date posted: March 24, 2009

Suggested Citation

Paldam, Martin, The Welfare State and Baumol's Law (March 24, 2009). Univ. of Aarhus Economics Working Paper No. 2009-5. Available at SSRN: http://ssrn.com/abstract=1367515 or http://dx.doi.org/10.2139/ssrn.1367515

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Martin Paldam (Contact Author)

University of Aarhus - Department of Economics ( email )

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