 Free trade agreements and privatization policy with an excess burden of taxationLili Xu (), Sang-Ho Lee () and Leonard F.S. Wang Japan and the World Economy, 2016, vol. 37-38, 55-64 Abstract: We introduce the excess burden of taxation into a bilateral trade, two-country and two-mixed market model, in which a state-owned enterprise in each country competes with both domestic and foreign private enterprises. We show that the welfare effect of privatization and free trade agreements (FTAs) depends on the shadow cost of the excess burden of taxation. We also show that privatization without an FTA can reduce social welfare and that privatization with an FTA improves (reduces) social welfare when the shadow cost is low (high). We then examine an FTA-coordination game and show that nationalization is a subgame perfect Nash equilibrium; without an FTA it reduces welfare when the shadow cost is low, and with an FTA it improves welfare when the shadow cost is high. Finally, we show that privatization policy can play the role of commitment device to encourage parties to agree to an FTA and thus, it can improve both domestic and global welfare when the shadow cost is low. Keywords: Mixed market; Excess taxation burden; FTA; Production subsidy; Import tariff; Privatization (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:37-38:y:2016:i::p:55-64 DOI: 10.1016/j.japwor.2016.03.001 Access Statistics for this article Japan and the World Economy is currently edited by Robert Dekle and Yasushi Hamao More articles in Japan and the World Economy from Elsevier |
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