Can Public Sector Wage Bills Be Reduced?

Pierre Cahuc (1, 2, 3) , Stéphane Carcillo (4)

1 X - École polytechnique
2 ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique
3 CREST - Centre de Recherche en Economie et Statistique [Bruz]
4 ECON - Département d'économie (Sciences Po)

This paper analyzes the relation between public wage bills and public deficits in the OECD countries from 1995 to 2009. The paper shows that fiscal drift episodes, characterized by simultaneous increases in the GDP shares of public wage bills and budget deficits, are more frequent during booms and election years, but not during recessions, except for the 2009 exceptionally strong recession. The emergence of fiscal drift episodes during booms and election years is less frequent in countries with more transparent government, more freedom of the press, as well as in countries with presidential regimes and less union coverage. Inversely, fiscal tightening episodes, characterized by simultaneous decreases in the GDP shares of public wage bills and budget deficits, occur less often during booms than during recessions. The emergence of fiscal tightening episodes during recessions and election years is less frequent in countries with more union coverage.

Keywords: Public sector; Public wage bills; Public deficit; Fiscal drift episodes

Domains: Economics and Finance

Pierre Cahuc, Stéphane Carcillo. Can Public Sector Wage Bills Be Reduced?. Alberto Alesina; Francesco Giavazzi. Fiscal Policy after the Financial Crisis, University of Chicago Press, pp.359 - 404, 2013, 9780226018584. ⟨hal-03470591⟩