The Relationship between Privatization and Corporate Taxation Policies

Liu, Yi and Matsumura, Toshihiro and Zeng, Chenhang (2018): The Relationship between Privatization and Corporate Taxation Policies.

Abstract

This paper investigate how the corporate (profit) tax rate affects the optimal degree of privatization in a mixed duopoly, while introducing a minimum profit constraint for the private firm. Firstly, we show that the profit tax rate directly affects the behavior of the partially privatized firm and affects the behavior of the private firm through strategic interaction. In addition, we investigate the relationship between the optimal privatization policy and corporate tax policy, and find that the optimal degree of privatization increases with the corporate tax rate, regardless of whether the constraint is binding. The optimal degree of privatization decreases (increases) with the foreign ownership share in the private firm if the constraint is ineffective (effective). This result suggests that a minimum profit constraint can be crucial in the optimal privatization policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: profit tax, minimum profit constraint, foreign ownership, optimal public ownership
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; H - Public Economics > H4 - Publicly Provided Goods > H44 - Publicly Provided Goods: Mixed Markets; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L33 - Comparison of Public and Private Enterprises and Nonprofit Institutions ; Privatization ; Contracting Out

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