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An Analysis of State Capital Share and Its Implications to the Efficiency-Equality Nexus

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  • Ying Wu

    (Department of Economics and Finance, Franklin P. Perdue School of Business (AACSB Accreditation), Salisbury University, Salisbury, MD 21801-6860, USA)

  • Hong Yao

    (Department of Economics and Finance, Salisbury University, Salisbury, MD 21801-6860, USA)

Abstract

This paper investigates the impact of state ownership on the efficiency-equality tradeoff in a mixed economy with both state and nonstate sectors. Using overall capital productivity as an efficiency proxy and state output share as an inequality proxy, we identify the efficiency threshold of state capital share that splits the efficiency-equality relationship between a tradeoff and nontradeoff. When state capital share is greater than the threshold (as evidenced in the case of China), lowering state capital share improves efficiency and reduces inequality. Furthermore, our simulation results suggest that the threshold is sensitive to capital shares in output of the both sectors. A broad scope for mutual gains in efficiency and equality exists by raising the capital share in nonstate output and lowering the capital share in state output.

Suggested Citation

  • Ying Wu & Hong Yao, 2022. "An Analysis of State Capital Share and Its Implications to the Efficiency-Equality Nexus," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 25(02), pages 1-25, June.
    • Handle: RePEc:wsi:rpbfmp:v:25:y:2022:i:02:n:s0219091522500151
    DOI: 10.1142/S0219091522500151
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