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Macroeconomic effects of cost savings in public procurement

Lukas VOGEL, European Commission

Macroeconomic effects of cost savings in public procurementpdf(316 kB) Choose translations of the previous link 

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The paper analyses the macroeconomic gain from cost savings in public procurement in an extended version of QUEST III. Labour tax cuts in response to cost savings from cheaper procurement (0.5 pp mark-up decline per year over 10 years and 20% of procurement) raise GDP, employment and consumption by 0.1% after 5 and 0.1-0.2% after 50 years. Alternative policies, such as lower capital taxes and higher public investment, have comparable or stronger long-run GDP effects, lower or comparable consumption effects, and zero employment effects. Supply expansion under lower capital taxes and higher public investment derives from higher investment. Benefits are approximately linear to the size of cost savings and depend on key parameters, such as the elasticity of labour supply or the productivity of public capital.


(European Economy. Economic Papers. 389. November 2009. Brussels. 15pp. Tab. Graph. Ann. Bibliogr. Free.)

KC-AI-09-389-EN-N (online)
ISBN 978-92-79-13364-0 (online)
ISSN 1725-3187
doi:10.2765/29810 (online)

JEL classification: E20, H31, H32, H40

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