In this work, we simulate the effects of the tax autonomy of the Austrian Länder on the levels of public employment in each
Land. We show that depending on the strength of the public sector lobby, tax autonomy would require a reduction of employment
in the public sector of between 25 and 35 percent of the current level. We also show that tax autonomy increases welfare levels
by 1 to 1.5 percent; that is, the positive change in the disposable income of the workers more than offsets the welfare loss
resulting from the lower provision of public goods. Finally, we show that the reduction of public employment is superior in
terms of welfare to an alternative scenario in which employment levels are held constant but the wage levels in the public
sector are adjusted.
Forschungsbereich:Makroökonomie und europäische Wirtschaftspolitik