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Shadow cost of public funds and privatization policies

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  • Sato, Susumu
  • Matsumura, Toshihiro

Abstract

We investigate the impacts of government budget constraints on the optimal privatization policy in mixed oligopolies by introducing the shadow cost of public funds. The government is concerned with both the total social surplus and the revenue obtained by privatization. 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, the higher the cost, the lower the optimal degree of privatization. However, when the cost is high, a cost increase may drastically increase the optimal degree of privatization. The average foreign ownership share in private enterprises affects the optimal degree of privatization, whereas the distribution of foreign ownership share among private firms does not. Foreign ownership shares in privatized public enterprises also influence the optimal degree of privatization, and a non-monotone relationship emerges for the smaller shadow cost of public funds when the share is larger.

Suggested Citation

  • Sato, Susumu & Matsumura, Toshihiro, 2019. "Shadow cost of public funds and privatization policies," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940818306685
    DOI: 10.1016/j.najef.2019.101026
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    6. Qidi Zhang & Leonard F.S. Wang & Yapo Yang, 2020. "Indirect taxation with shadow cost of public funds in mixed oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 415-425, April.
    7. Xingtang Wang & Leonard F. S. Wang, 2024. "Corporate social responsibility and tariff policy in a differentiated mixed duopoly," Bulletin of Economic Research, Wiley Blackwell, vol. 76(2), pages 470-487, April.
    8. Dementiev, Andrei & Han, Hyen Jin, 2020. "A theory of deregulation in public transport," Research in Transportation Economics, Elsevier, vol. 83(C).
    9. John S. Heywood & Shiqiang Wang & Guangliang Ye, 2021. "Partial Privatization Upstream with Spatial Price Discrimination Downstream," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(1), pages 57-78, August.
    10. Chen, Hung-Yi & Yang, Ya-Po & Hu, Jin-Li, 2023. "Environmental taxes under mixed duopoly: The roles of privatization and foreign eco-technology," Economic Modelling, Elsevier, vol. 126(C).
    11. Junichi Haraguchi & Toshihiro Matsumura, 2020. "Endogenous public and private leadership with diverging social and private marginal costs," Manchester School, University of Manchester, vol. 88(5), pages 699-730, September.
    12. Basak Debasmita & Mukherjee Arijit, 2022. "Social Efficiency of Market Entry Under Tax Policy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 22(3), pages 601-610, July.
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    14. Junichi Haraguchi & Toshihiro Matsumura, 2021. "Profit‐enhancing entries in mixed oligopolies," Southern Economic Journal, John Wiley & Sons, vol. 88(1), pages 33-55, July.
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    16. Sato, Susumu & Matsumura, Toshihiro, 2018. "Flexible Privatization Policy in Free-Entry Markets," MPRA Paper 88444, University Library of Munich, Germany.
    17. Doori Kim & Sang‐Ho Lee, 2024. "Environmental policies with the excess burden of public funds and privatisation," Australian Economic Papers, Wiley Blackwell, vol. 63(2), pages 329-349, June.

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    More about this item

    Keywords

    Shadow cost of public funds; Free entry; State-owned public enterprises; Foreign competition;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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