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The Relationship between Privatization and Corporate Taxation Policies

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  • Liu, Yi
  • Matsumura, Toshihiro
  • Zeng, Chenhang

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.

Suggested Citation

  • Liu, Yi & Matsumura, Toshihiro & Zeng, Chenhang, 2018. "The Relationship between Privatization and Corporate Taxation Policies," MPRA Paper 89784, University Library of Munich, Germany, revised Oct 2018.
    • Handle: RePEc:pra:mprapa:89784
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    Cited by:

    1. Xu Lili & Lee Sang-Ho, 2022. "Corporate Profit Tax and Strategic Corporate Social Responsibility Under Foreign Acquisition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 22(1), pages 123-151, January.
    2. Quan Dong & Leonard F. S. Wang, 2021. "Profit taxation and the optimal privatisation of state holding corporations," Australian Economic Papers, Wiley Blackwell, vol. 60(3), pages 375-391, September.
    3. Akio Kawasaki & Takao Ohkawa & Makoto Okamura, 2022. "Optimal partial privatization in an endogenous timing game: a mixed oligopoly approach," Journal of Economics, Springer, vol. 136(3), pages 227-250, August.
    4. Liu, Yi & Lahiri, Sajal & Liu, Tianqi, 2018. "Optimal Partial Privatization in the Presence of Foreign Competition: The Role of Efficiency Differentials and Unemployment," MPRA Paper 91471, University Library of Munich, Germany, revised 23 Jan 2019.
    5. Suzuka Okuyama, 2022. "Behavior-based Price Discrimination in the Domestic and International Mixed duopoly," ISER Discussion Paper 1179, Institute of Social and Economic Research, Osaka University.

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    More about this item

    Keywords

    profit tax; minimum profit constraint; foreign ownership; optimal public ownership;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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