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Journal Articles Oxford Bulletin of Economics and Statistics Year : 2016

Labour Costs and the Size of Government


Given inelastic demand for labour‐intensive public services, the size of government depends positively on labour costs. OECD data exhibit a strong statistical association between government size and the business‐sector labour share of income. When the labour share is instrumented with measures of technological change, institutional variation and predetermined data it continues to positively impact government size. In contrast, transfer spending is unaffected by the labour share. The evidence is consistent with the idea that the recent decline in the labour share has contributed to the slowdown in the growth of government witnessed in much of the post‐war era.

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hal-01344639 , version 1 (12-07-2016)



François Facchini, Mickaël Melki, Andrew C. Pickering. Labour Costs and the Size of Government. Oxford Bulletin of Economics and Statistics, 2016, 79 (2), pp.251-275. ⟨10.1111/obes.12140⟩. ⟨hal-01344639⟩
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