Why Do Governments Divest?: The Macroeconomics of by Alfred Schipke

By Alfred Schipke

On an unheard of scale, countries in any respect source of revenue degrees and around the political spectrum have initiated privatization courses over the last 20 years. during this privatization stream, microeconomic potency arguments became the normal justification for the divestment of public resources. Why Do Governments Divest? The Macroeconomicsof Privatization offers another view. This e-book argues that temporary macroeconomic concerns are frequently the genuine rationale at the back of privatization courses, permitting politicians to use privatization for political achieve by way of manipulating macroeconomic aggregates. Macroeconomic concerns may also impression the character of privatization efforts, delaying beneficial reforms so as to hinder bad short-run outcomes. This specialize in non permanent goals has a tendency to prevent the success of monetary potency and to abate growth in the direction of larger dwelling standards.

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Extra info for Why Do Governments Divest?: The Macroeconomics of Privatization

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46 Why Do Governments Divest? 2. 1). S. dollars at PPP exchange rates. 2/ Data for 1998 not available. 1992 1993 1994 1995 1996 1997 1998 Fiscal Considerations ofPrivatization 47 for example, is Argentina. In the aftermath of two hyperinflations, the government had lost its ability to fmance its operations and had practically lost access to any form of voluntary lending. Abdala points out that since Argentina was unable to generate current account surpluses to meet external interest payments and the government had already reached arrears of U.

Given that the underlying assumptions for the Barro-Ricardian equivalence are so stringent, a change in taxes as a result of privatization should allow governments to influence interest rates, aggregate demand, and the current account. 3 The one period budget constraint The intertemporal budget constraint provides a normative guidepost for privatization: privatization is recommended when it improves efficiency, as reflected in an improvement in the government's net worth. However, governments also face a second budget constraint, which requires that in any given period all government spending must be fmanced.

However, irrespective of these differences and hence the likely behavior of governments, the phenomena covered by the political economy literature can contribute to an understanding of why privatization has becomes such a popular instrument of public policy. Traditionally, it is assumed that privatization reflects a change in the direction of economic policy on the part of policymakers. However, if the insights of the political economy literature are applied, privatization is compatible with unchanged government behavior and "business as usual".

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