SOME MYTHS ON PUBLIC-SECTOR AND PRIVATISA TION

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