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Privatization, Public Deficit Finance, and Investment in Infrastructure

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  • Christodoulakis, Nikos
  • Katsoulacos, Yannis

Abstract

The paper presents a theoretical analysis of the relationship between privatization and public deficit finance. We examine the optimal magnitude of public asset sales and the extent to which privatization can be used to reduce taxes, or, to retire public debt, for two cases. In the first, standard case, privatization proceeds are used directly to finance the public deficit, while in the second they are used in cost-reducing public investment in infrastructure. In the latter case the government gains through smaller deficits of remaining public firms, higher proceeds from profit taxation and a smaller net employment loss. We find that the second case will often be associated with lower taxes for any given number of privatizations and a greater optimal number of privatizations than the first.

Suggested Citation

  • Christodoulakis, Nikos & Katsoulacos, Yannis, 1993. "Privatization, Public Deficit Finance, and Investment in Infrastructure," CEPR Discussion Papers 831, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:831
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    Citations

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    Cited by:

    1. Bernardo Bortolotti & Domenico Siniscalco & Marcella Fantini, 2000. "Privatisation and Institutions: A Cross Country Analysis," CESifo Working Paper Series 375, CESifo.
    2. Bortolotti, Bernardo & Fantini, Marcella & Siniscalco, Domenico, 2001. "Privatisation: politics, institutions, and financial markets," Emerging Markets Review, Elsevier, vol. 2(2), pages 109-137, June.

    More about this item

    Keywords

    Infrastructure; Privatization; Public Finance; Public Investment;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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