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When will privatization maximize the government's net revenues?

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  • Taylor, Leon

Abstract

Governments often sell assets for revenues or economic efficiency. When the capital is durable, potential buyers may wait for the government to cut its price, since they know that as a monopoly it will initially price above marginal cost. Rather than sell, the government could continue to lease the capital to the public – that is, to sell the services that the capital generates, in exchange for a tax payment. Comparative statics indicate that a government maximizing its net revenues may prefer leasing to selling for a large inventory of capital-intensive products that buyers view as vital. For example, a socialist government contemplating a transition to markets must consider the impact on its own revenues. If its major assets are capital-intensive, the impact may be negative.

Suggested Citation

  • Taylor, Leon, 2016. "When will privatization maximize the government's net revenues?," MPRA Paper 69589, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:69589
    as

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    File URL: https://mpra.ub.uni-muenchen.de/69589/1/MPRA_paper_69589.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Durable-goods monopoly; privatization; leasing versus selling; government revenues; transition economy;
    All these keywords.

    JEL classification:

    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue

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