Substudy 12: Momentum for Growth from the Public Purse

Theoretical and empirical studies have shown that the state share as such has little impact on growth and employment. Of more relevance is the structure of state revenues and expenditures. Taxes on work have a markedly more negative impact on growth and employment than taxes on capital gains and wealth. High marginal tax rates are less expansive in their effect than are high average tax rates. State expenditure on consumption is less expansive than is its expenditure on education and infrastructure. Given these findings, the Austrian tax system is not yet optimised. Work is taxed at a much higher rate than the EU average and has further increased in recent years. A shift from taxing work to higher taxes on environmental consumption and capital (energy consumption, real properties, inheritance) would boost growth and employment. The structure of expenditures can be similarly changed to be more growth-friendly. Efficiency gains, attended by positive growth and employment effects, could be achieved in public administration by decentralisation and, chiefly, unbundling of intragovernmental transfer relations (housing, teachers), harmonisation of the budget law and by increasing the output orientation of the budget management process.