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Optimal Production Tax in a Mixed Market with an Endogenous Market Structure

Sususmu Cato () and Toshihiro Matsumura ()

Manchester School, 2019, vol. 87, issue 4, 578-590

Abstract: We investigate how the optimal production tax rate is affected by privatization policies in a mixed oligopoly in which a state‐owned public firm competes against private firms in a free‐entry market. First, we investigate the domestic private firm case. The optimal tax rate is strictly positive except for the full privatization and full nationalization cases, and the relationship between the optimal tax rate and degree of privatization is an inverted U‐shape. Next, we investigate the foreign private firm case and find that the non‐monotonic relationship disappears.

Date: 2019
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