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Indirect Taxation and Privatization in a Model of Government's Preference

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  • Choi, Kangsik

Abstract

By introducing the government's preference for tax revenues into unionized mixed duopolies, this paper investigates how the preference can change the government's choice of tax regimes between ad valorem and specific taxes. Main results are as follows. Given that one of the tax regimes is predetermined, privatization never improves welfare and privatization is preferable for the government when it emphasizes its tax revenue. However, when the tax regime is {\it endogenously} determined by the government, privatization is preferable from the viewpoint of social welfare if the government heavily emphasizes its tax revenue. Thus, there are conflicts of interest between the public firm and the government: If it heavily emphasizes its tax revenue, then the government always has the incentive to levy specific tax, while the public firm has the incentive to be levied by ad valorem. However, there are no conflicts of interest between the public firm and the government when the government levies the specific tax if the government less emphasizes its tax revenue. Interestingly, the government never has the incentive for privatization if the government considers either tax as an option.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42968.

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Date of creation: 30 Nov 2012
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Handle: RePEc:pra:mprapa:42968

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Keywords: Ad Valorem; Specific Tax; Government's Payoff; Social Welfare; Privatization;

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  1. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 363-370, March.
  2. Choi, Kangsik, 2011. "Unions, government's preference, and privatization," Economic Modelling, Elsevier, Elsevier, vol. 28(6), pages 2502-2508.
  3. Mujumdar, Sudesh & Pal, Debashis, 1998. "Effects of indirect taxation in a mixed oligopoly," Economics Letters, Elsevier, Elsevier, vol. 58(2), pages 199-204, February.
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  9. Philip Du Caju & Erwan Gautier & Daphne Momferatu & Melanie Ward-Warmedinger, 2009. "Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan," Ekonomia, Cyprus Economic Society and University of Cyprus, Cyprus Economic Society and University of Cyprus, vol. 12(2), pages 57-108, Winter.
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  12. Ishida, Junichiro & Matsushima, Noriaki, 2009. "Should civil servants be restricted in wage bargaining? A mixed-duopoly approach," Journal of Public Economics, Elsevier, Elsevier, vol. 93(3-4), pages 634-646, April.
  13. Bos, Dieter, 1991. "Privatization: A Theoretical Treatment," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198283690, October.
  14. Brcena-Ruiz, Juan Carlos & Garzn, Mara Begoa, 2009. "Relocation and public ownership of firms," Journal of the Japanese and International Economies, Elsevier, vol. 23(1), pages 71-85, March.
  15. Marius BRÜLHART & Mario JAMETTI, 2004. "Vertical Versus Horizontal Tax Externalities: An Empirical Test," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 04.11, Université de Lausanne, Faculté des HEC, DEEP.
  16. Delipalla, Sofia & Keen, Michael, 1992. "The comparison between ad valorem and specific taxation under imperfect competition," Journal of Public Economics, Elsevier, Elsevier, vol. 49(3), pages 351-367, December.
  17. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262720116, December.
  18. Michael Keen, 1998. "The balance between specific and ad valorem taxation," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 19(1), pages 1-37, February.
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