Do Government Wage Cuts Close Budget Deficits? a Conceptual Framework for Developing Countries and Transition Economies

February 1, 1996

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Do Government Wage Cuts Close Budget Deficits? a Conceptual Framework for Developing Countries and Transition Economies, (USA: International Monetary Fund, 1996) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Real wage declines have been common in the public sector in many countries over substantial periods of time. In several cases, such wage reductions have coincided with a decline in the efficiency of the public sector. In a simple analytical framework, it is shown that higher wage levels alter the incentive compatible equilibrium by attracting relatively skilled human capital to the government sector, which raises the quality of public output--tax revenue collection in this paper. Increases in wages should be complemented with appropriate monitoring and penalty rates for effective tax administration; prescriptions of raising the statutory tax rate alone, however, may not increase revenue collection.

Subject: Corruption, Crime, Labor, Public sector wages, Real wages, Revenue administration, Tax evasion, Wages

Keywords: Africa, Corruption, Eastern Europe, Employees well, Government pay-scale, Government wage cut, Government wage policy, Government wages low, Private sector, Public sector wages, Real wages, Tax evasion, Wage rate, Wages, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/019
Stock No:

WPIEA0191996
ISBN:

9781451922554
ISSN:

1018-5941

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