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Private sector vs public sector: A study in pizza

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Russell Mountford /Lonely Planet/Newscom/File

(Read caption) If government could become more cost-effective (i.e a lower tax price per unit of services provided) would more moderate Republicans be "pro-government"?

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Imagine an economy where everybody has identical tastes. We like consuming pizza and we like riding public transit. Pizza is produced by private firms who sell it at the market price. People use all of their income minus what they pay in taxes to buy pizza. Tax dollars are collected across everybody and are used to build public transit that people ride for free once it is built.

In this economy, let's introduce one twist. There are two types of people. There are "Republicans" who believe that the government is inefficient at taking tax revenue and using this to build public transit while there is another group called "Democrats" who do not share this concern.

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In terms of the language of economics, the Republicans perceive that there is a high price (measured in pizza) for building more public transit.

How will this affect voting? Republicans will want low taxes and high pizza while Democrats will accept the high taxes because they believe that a lot of public transit will be built.

Note that everyone has the same tastes in this economy but people differ with respect to what they perceive to be the price of providing public goods (the transit).

Who is right? I don't believe economists have done a good job measuring the price per quality adjusted services when government provides it versus when the private sector provides it.

If there is a large public sector wage premium (i.e that a high school graduate earns much more at the Post Office than at Starbucks), then the Republican will be right about the conjecture presented above. If government is an inefficient manager of big projects (i.e Boston Big Dig), then this conjecture is more likely to be correct.

So, here is my point --- if government could become more cost-effective (i.e a lower tax price per unit of services provided) would more moderate Republicans be "pro-government"?


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