Public Providers, Versus Private Providers, of Public Goods: A General Equilibrium Study of the Role of the State

40 Pages Posted: 15 Jun 2011

See all articles by George Economides

George Economides

Athens University of Economics and Business - Department of International and European Economic Studies

Apostolis Philippopoulos

Athens University of Economics and Business - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); University of Essex

Vanghelis Vassilatos

Athens University of Economics and Business - Department of Economics

Date Written: June 14, 2011

Abstract

This paper studies the difference between public production and public finance of public goods in a dynamic general equilibrium setup. By public finance, we mean that the public good is produced by private providers with the government financing their costs. When the model is calibrated to match fiscal data from the UK economy, the main result is that, ceteris paribus, a switch from public production to public finance can have substantial aggregate and distributional implications. Public providers cannot beat private providers in terms of aggregate efficiency. We finally design a transfer scheme that can make a switch to private provision welfare improving for all agents including public employees.

Keywords: public goods, growth, welfare

JEL Classification: H400, D900, D600

Suggested Citation

Economides, George and Philippopoulos, Apostolis and Vassilatos, Vanghelis, Public Providers, Versus Private Providers, of Public Goods: A General Equilibrium Study of the Role of the State (June 14, 2011). CESifo Working Paper Series No. 3487, Available at SSRN: https://ssrn.com/abstract=1864530 or http://dx.doi.org/10.2139/ssrn.1864530

George Economides

Athens University of Economics and Business - Department of International and European Economic Studies ( email )

GR-10434 Athens
Greece
+30-210-8214122 (Phone)
+30-210-8203729 (Fax)

Apostolis Philippopoulos (Contact Author)

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+301 322 3187 (Phone)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Vanghelis Vassilatos

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece

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