, Volume 126, Issue 1-2, pp 201-224

The political economy of mass privatisation and imperfect taxation: Winners and loosers

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This article investigates the connection between the apparently uncorrelated issues of tax evasion and privatisation in a political economy framework. We first consider how the political process – given a country's level of development and income distribution – will affect the efficiency of the tax system. We then discuss the impact of the efficiency of the taxation system on the outcomes of privatisation. We consider under which condition privatisation will proceed, and who will be the political supporters as well as the main winners of the privatisation process. Moreover, we investigate the impact of different forms of corruption both on the initial public support for privatisation, as well as on its long term political sustainability.

This work was undertaken while Rudiger Ahrend was at DELTA (Paris) and London School of Economics prior to joining OECD. The views expressed in this article are those of the authors and do not necessarily reflect those of the QECD or its member countries. The authors would like to thank Tim Besley, Francois Bourguignon, William Tompson, Thierry Verdier, as well as seminar participants at the 1999 LACEA-WB workshop, and the 2000 AFSE conference for many helpful discussions and comments. We are also grateful for the helpful comments of an anonymous referee. The usual disclaimer applies.