Fiscal Austerity and Public Servant Quality.

In this article we use a simple model to analyze the forces that determine the size of the public sector and the quality of workers employed in that sector. Workers are heterogeneous, and the public sector chooses an employment strategy which maximizes a utility function U(s, Y) that depends on the share of the labor force employed in public services and private sector output Y. The government is fully informed about worker productivity. We characterize the behavior of the public sector, and explore the efficiency and employment consequences of imposing fiscal constraint on the government. Copyright 2000 by Oxford University Press.