Environmental Taxes In The Presence Of Privatization Of State-owned Enterprises

Since China’s reform and opening-up policy, China has achieved tremendous success in economic construction, and has become the world’s second largest economy. However, with the extensive mode of economic growth, there emerge many high-polluting and high energy-consumption enterprises in China, which generates serious environmental problem. It is of great urgency to carry out environmental taxation reform and strengthen supervision on polluting enterprises.The sources of contamination are mainly upstream major industries, e.g., coal industry, petroleum industry and chemical industry. Many of them are currently in the imperfect competition market, where public firms and private firms co-exist and compete together. With the development of China’s socialist market economy, large quantities of public firms have been privatized, which lead to the improvement of profitability and corporate governance structure. The share of private economy in the national economy has experienced a significant increase, and private economy is now playing a more and more important role in promoting economic development.Based on China’s reality, this paper constructs a differentiated mixed oligopoly model in vertically related market, and analyzes the effects of environmental tax in the presence of privatization of public firm. Specifically, the upstream production market is a mixed oligopoly market, where a public firm and a private firm compete by setting prices. The downstream market serving as sales market consists of two private firms which compete in quantities. The paper considers three different scenarios, i.e., pre-privatization, privatization and technical improvement, in which we obtain the corresponding optimal environmental tax, equilibrium environmental damage and social welfare. By setting pre-privatization as the benchmark model, the paper sequentially compares the privatization case and technical-improvement case with pre-privatization case. Then we get the condition under which the environmental tax yields "double dividend".Lastly, the paper investigates current situation and defects of China’s environmental policy. Then by combining the reality and the relevant results in the theoretical model, we provide some policy suggestions for China’s environmental taxation reform.