Some myths on public sector and privatisation

The choice of optimal public sector size can be determined only by referring to preferences. Cuts, privatisation and deregulation are often motivated by the notion that society 'cannot afford' the present public sector size, but the present cost crisis is explained by unemployment, partly caused by cuts in public services. It means that there exist idle resources which allow for an expansion of the public sector as well. High marginal taxes are often seen as reducing the supply of labour, but empirical research and evidence from recent tax reforms suggest that this effect is of minor importance. Other motives refer to cost efficiency, but empirical evidence suggest that public production is not inherently inefficient.