By Alfred Schipke
On an unheard of scale, international locations in any respect source of revenue degrees and around the political spectrum have initiated privatization courses over the last two decades. during this privatization circulation, microeconomic potency arguments became the traditional justification for the divestment of public resources. Why Do Governments Divest? The Macroeconomicsof Privatization offers an alternative view. This publication argues that non permanent macroeconomic concerns are usually the genuine reason in the back of privatization courses, permitting politicians to take advantage of privatization for political achieve via manipulating macroeconomic aggregates. Macroeconomic concerns may also impression the character of privatization efforts, delaying important reforms so that it will hinder bad short-run outcomes. This specialise in non permanent pursuits has a tendency to prevent the success of monetary potency and to abate growth in the direction of better dwelling standards.
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Extra info for Why Do Governments Divest?: The Macroeconomics of Privatization
Sample text
Barro's argument that generations are linked through family ties leading to an altruistic bequest motive seems to be rather weak. While households might at least partly adjust their bequests to compensate for the additional tax liability of their children, it would be a very strong assumption that the current generation would fully adjust its consumption pattern as a result of privatization-induced tax reductions. Furthermore, Ricardian equivalence only holds if capital markets are perfect. The depth of capital markets and hence the degree to which they approximate such an assumption varies to a large degree among countries, and it would be presumptuous to make such an assumption in the case of transition economies and developing countries.
While households might at least partly adjust their bequests to compensate for the additional tax liability of their children, it would be a very strong assumption that the current generation would fully adjust its consumption pattern as a result of privatization-induced tax reductions. Furthermore, Ricardian equivalence only holds if capital markets are perfect. The depth of capital markets and hence the degree to which they approximate such an assumption varies to a large degree among countries, and it would be presumptuous to make such an assumption in the case of transition economies and developing countries.
However, economic theory does not provide a clear answer as to the effectiveness of this strategy. Whether or not privatization has broader macroeconomic implications is-among other things-related to the behavior of economic agents. The discussion of whether and under what circumstances the public deficit has any impact on macroeconomic aggregates was revived by Barro (1974) in his extension of Ricardian equivalence. Barro suggested that it does not matter whether a given level of public expenditure is financed by collecting taxes or by running a deficit.