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

  • Choi, Kangsik

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
Date of revision:
Handle: RePEc:pra:mprapa:42968
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  1. repec:ebl:ecbull:v:12:y:2008:i:40:p:1-7 is not listed on IDEAS
  2. Seade, J, 1985. "Profitable Cost Increases and the Shifting of Taxation : Equilibrium Response of Markets in Oligopoly," The Warwick Economics Research Paper Series (TWERPS) 260, University of Warwick, Department of Economics.
  3. Ishida, Junichiro & Matsushima, Noriaki, 2009. "Should civil servants be restricted in wage bargaining? A mixed-duopoly approach," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 634-646, April.
  4. 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) 04.11, Université de Lausanne, Faculté des HEC, DEEP.
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  6. Haucap, Justus & Wey, Christian, 2003. "Unionisation Structures and Innovation Incentives," Working Paper 21/2003, Helmut Schmidt University, Hamburg.
  7. Michael Keen, 1998. "The balance between specific and ad valorem taxation," Fiscal Studies, Institute for Fiscal Studies, vol. 19(1), pages 1-37, February.
  8. Du Caju, Philip & Gautier, Erwan & Momferatou, Daphne & Ward-Warmedinger, Melanie, 2008. "Institutional features of wage bargaining in 23 European countries, the US and Japan," Working Paper Series 0974, European Central Bank.
  9. 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.
  10. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262720116, March.
  11. Michael Rauscher, 2000. "Interjurisdictional Competition and Public-Sector Prodigality: The Triumph of the Market over the State?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(1), pages 89-, September.
  12. Jeremy Edwards & Michael Keen, 1994. "Tax competition and Leviathon," IFS Working Papers W94/07, Institute for Fiscal Studies.
  13. Mujumdar, Sudesh & Pal, Debashis, 1998. "Effects of indirect taxation in a mixed oligopoly," Economics Letters, Elsevier, vol. 58(2), pages 199-204, February.
  14. Sofia Delipalla & Michael Keen, 1991. "The Comparison Between Ad Valorem and Specific Taxation under Imperfect Competition," Working Papers 821, Queen's University, Department of Economics.
  15. Choi, Kangsik, 2011. "Unions, government's preference, and privatization," Economic Modelling, Elsevier, vol. 28(6), pages 2502-2508.
  16. Bos, Dieter, 1991. "Privatization: A Theoretical Treatment," OUP Catalogue, Oxford University Press, number 9780198283690, December.
  17. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314, March.
  18. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, vol. 92(1), pages 363-370, March.
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