بودجه دولت، دستمزدهای بخش دولتی و مالیات های بر سرمایه در یک اقتصاد باز کوچک : مورد هنگ کنگ

This paper examines the welfare implications of adjustments in public-sector wages and capital tax rates for a small open economy in a general equilibrium setting. The individually and jointly optimal wage and tax policies are derived and interpreted. Facing reductions in land sales and falls in foreign interest rates, a cut in public workers' pay is needed to make their wage comparable to the private sector and a hike in capital taxes is recommended for a budgetary consideration. Using a computable general equilibrium model for Hong Kong, we numerically evaluate the various optimal policies which not only confirm the theoretical results but also provide quantitative estimates of the optimal policy variables.

In many countries, the wages and salaries of public-sector employees are institutionally set and hence less responsive to market situations compared to those of the private sector. Generally, during economic booms, public-sector wages may be lower than wages of the private sector and vice versa during the period of economic woe. In some countries, especially in developing nations, perhaps out of governmental concerns for political stability, public-sector employees receive higher wages than their counterparts in the private sector. During economic downturns, this can lead to a fiscal problem for the government in addition to inefficiency in the public sector. A vivid example is a case of Hong Kong in early 2000s in which the pay for government employees was higher than private-sector workers, and more than half of the government budget was made up for paying salaries and wages. During prosperous times, government spending can be financed by revenues collected from all sorts of taxes and public land leases in Hong Kong. However, during the recent years of economic downturns subsequent to the Asian financial crisis in 1997, shortfalls in government revenue have severely restricted government spending. In order to maintain a sound fiscal budgeting, the issues of cutting the wages of public-sector employees and instituting tax reforms for raising revenue had been implemented. Civil service pay was cut by 4.75% in October 2002 and another 6% cut was instituted in January 2004. Concomitantly, the corporate tax was increased by 1% from 16.5% to 17.5% in January 2004.1 The purpose of this paper is to examine the optimal wage structure for public and private sectors and the consequent tax reforms to finance public spending using Hong Kong as a case for study. Hong Kong's government revenue mainly consists of income taxes on individuals and companies (36.5% in 2002–03), capital revenues (24.5%) including land premium (11.6%), and other investment and recurrent revenues, while a large portion (66%) of government expenditure is on wages, salaries and social security payments.2 In our theoretical model, we focus on government wage payments to its employees, who receive above-the-market salaries and wages. The financing of public expenditure is constrained by the revenues from capital taxes and land sales/leases.3 We will show that the optimal policy involves elimination of the inter-sectoral wage gap so that public-sector wages will be lowered and in line with private-sector wages. This will be coupled with an optimal capital tax rate, which depends on (i) the factors pertinent to revenue generation for the government, e.g. amount of available capital and land leases, and (ii) the attributes of the public good reflected by consumer's valuation of the public good and its production cost. Furthermore, the optimal capital tax rate can be affected by some external shocks, for example, changes in either land leases or world interest rates. The above theoretical analysis is supplemented with numerical simulation results from a computable general equilibrium (CGE) model specifically developed for tackling the issues of optimal public pay, capital taxes, and external shocks. Using a data set for Hong Kong, the CGE model is deployed to numerically evaluate the optimal policies and to derive the needed adjustment to the optimal policies in responding to external shocks. These results will be used to verify the validity of the theoretical propositions of the paper. The model also provides numerical estimates that may be useful for policy-making. This paper is organized as follows. Section 2 sketches a three-sector general equilibrium model. Section 3 examines the welfare effects of adjustments in public-sector wages and capital taxes. Furthermore, the individually and jointly optimal wages and capital tax rates will be derived. Section 4 studies the impact of an exogenous change in each of the several external shocks on the jointly optimal policies. Section 5 lays out the structure of the CGE model and describes the data set used for numerical simulations. Section 6 reports simulation results on the optimal policies and the changes in the optimal policies in responding to various external shocks. Some concluding remarks are provided in Section 7.

Using a general equilibrium model, this paper has examined the welfare implications of adjustments of public sector wages and capital tax rates. The individually and jointly optimal policies regarding public sector pay cuts and capital tax rate hikes are derived and interpreted. The impacts of external shocks, such as reductions in land sales and falls in foreign interest rates, on the optimal policies are also delineated. Specifically, a reduction in public workers' salaries is needed to make the level of the public wage comparable to the private sector and a hike in capital taxes is recommended for budgetary considerations. The empirical part of the paper develops a computable general equilibrium model for the small open economy of Hong Kong. Together with a dataset for Hong Kong, this model is used to numerically evaluate the various optimal policies. The numerical results not only confirm the main proposition of the paper but also provide preliminary quantitative estimates of the various optimal policy variables. There are a few limitations in this paper. First, it is assumed, for ease of tractability, that the production of the importable good uses labor only in the theoretical model. This yields, for this small open economy with given goods prices, a constant wage for the private sector. This appears at variance with the fact that private wages are generally flexible. Second, the model considered in this paper is based on a simple one-period setting, in which the government budget is balanced. It is desirable to extend the setting to a two-period model by allowing for budget deficit in the first period. Third, the parameters employed in the CGE model have not been empirically tested, and the numerically evaluated optimal policies seem to be sensitive to the parameterization of the model. Therefore, the numerical estimates provided here should be treated with great caution. Lastly, the dataset underpinning the numerical analysis is taken from the GTAP dataset, which is based on a rather old social accounting matrix (SAM) of the Hong Kong economy. To generate better numerical results of policy relevance, an updated SAM for Hong Kong is necessary. Relaxing the above mentioned assumptions and tackling some of the issues would be worthwhile topics for future research.