Munich Personal RePEc Archive

Shadow Cost of Public Funds and Privatization Policies

Sato, Susumu and Matsumura, Toshihiro (2017): Shadow Cost of Public Funds and Privatization Policies.

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Abstract

We investigate the optimal privatization policy in mixed oligopolies with shadow cost of public funds (excess burden of taxation). The government is concerned with both the total social surplus and the revenue obtained by the privatization of a public firm. We find that the relationship between the shadow cost of public funds and the optimal privatization policy is non-monotone. When the cost is moderate, then higher the cost is, the lower is the optimal degree of privatization. However, this does not hold when the cost is high. A further increase of the cost might drastically increase the optimal degree of privatization.

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