The Impact of Baumol's Disease on Government Size and Taxation

22 Pages Posted: 8 Sep 2015 Last revised: 22 Jul 2020

See all articles by Chris Mann

Chris Mann

University of Nebraska at Lincoln - Department of Economics

Paul Pecorino

University of Alabama - Department of Economics, Finance and Legal Studies

Date Written: July 21, 2020

Abstract

This paper investigates the implications of Baumol’s cost disease for a publicly provided good in the presence of distortionary taxation. A model is presented in which the publicly provided good experiences low labor productivity growth relative to the private good. The public sector will grow monotonically with the productivity differential between sectors and the tax rate will be pushed to the top of the Laffer curve over time. This paper also finds that the desire for redistribution will be crowded out by the impact of unbalanced growth and Baumol’s cost disease.

Keywords: Baumol's Cost Disease, Government Expenditures, Unbalanced Growth

JEL Classification: H40, H50, O41

Suggested Citation

Mann, Chris and Pecorino, Paul, The Impact of Baumol's Disease on Government Size and Taxation (July 21, 2020). Available at SSRN: https://ssrn.com/abstract=2657705 or http://dx.doi.org/10.2139/ssrn.2657705

Chris Mann (Contact Author)

University of Nebraska at Lincoln - Department of Economics ( email )

Lincoln, NE 68588-0489
United States

Paul Pecorino

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States
205-348-0379 (Phone)
205-348-0590 (Fax)

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