Incentives to Work and Performance in the Public Sector

This paper develops a dynamic general equilibrium model with three distinct social groups, capitalists, private workers and public employees. After solving for the status quo equilibrium, which can mimic the advantages of employment in the public sector in most EU countries, the paper looks for policy reforms that can improve work incentives, and hence enhance productive efficiency, in the public sector. We focus on reforms aiming to establish parity between work conditions in the public and the private sector.