Beyond Machiavellism: The Political Economy of Privatisation

Abstract

Over the last two decades, governments have most of the time granted -sometimes substantial - discounts when privatisating state assets. In average this discount has been higher under more right wing governments, and in more unequal countries. We present a simple political economy model of privatisation that can explain these main stylised facts of the recent privatisation experiences without having to rely on widespread machiavellian behaviour of governments. Moreover we investigate under which circumstances privatisation can proceed, and who will be the main beneficiaries. Finally we discuss the connection between privatisation and the efficiency of a country's tax system.