Department of Economics and Business Economics

The welfare state and Baumol's law

Research output: Working paperResearch


  • Wp09 05

    Final published version, 274 KB, PDF document

  • School of Economics and Management
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.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Århus Universitet
Number of pages16
Publication statusPublished - 2009

    Research areas

  • Welfare state, steady state growth

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