Privatization, Finance, and Economic Concepts
Privatization of Public Enterprises
Privatization of public enterprises involves selling state-owned enterprises to the private sector. This practice has become more common in recent years and is used as a rapid method of financing deficits. However, this sale deprives the state of permanent income from state welfare benefits provided by these companies.
Key Economic Concepts
- Bank Deposit: Contracts between economic-financial entities and operators where the latter provides a financial institution with an amount of money that the entity promises to return with established interest.
- Check: An order directed by the owner of a bank deposit to their bank to make a payment from an account.
- Financial Asset: A document or title that represents the holder’s right to future income.
- Full Potential Production/Employment: When all available productive factors are being used in the manufacture of goods and services.
- Mergers & Antitrust Laws: Antitrust laws may prevent certain types of partnerships and agreements between companies that try to reduce competition.
Non-Tax Revenues
Non-tax revenues come from the economic exploitation of state assets, such as charging entrance fees for museums. Revenue from the sale of state assets includes both the sale of state assets and public enterprises. In the late 1990s, the process of privatization of public enterprises was a significant source of income, allowing for a reduction in the public deficit.
Current and capital transfers received by the state without compensation include any amount of money the state gets without providing a direct counterpart. Examples are:
- Lottery proceeds
- Structural and cohesion funds received from the EU
Fiscal Income
Fiscal income for central, regional, and local administrations primarily comes from tax payments. These are required from families and businesses to meet public expenditure. There are three types of fees the state collects:
- Taxes: Collected for the provision of public services.
- Special Contributions: Levied by the public administration for the realization of public service work.
- Imposed Taxes: Payments with no specific service offered by the public administration, intended to provide general tax collection for the state.
Inflation Effects
Loss of purchasing power due to inflation depends on income but does not directly affect heritage.
- If a person’s wealth increases in physical assets, whether in money or debts, the real value of those assets will be worth less.
- Holders of receivables will be harmed as the repayment of the money will have less value.
This leads to a redistribution of income and wealth. Consumer uncertainty may cause individuals to acquire fewer goods with their income, preventing them from planning their spending. Companies may not know at what price to sell their products or the cost of acquiring productive factors. The public sector will find it more difficult to elaborate estimates of income and expenditure for their budgets.
Lost Competitiveness and Unemployment
Loss of competitiveness in foreign markets occurs as domestic products and exports decrease because they become more expensive. If money loses value, consumption and investment demand fall, leading to reduced production and unemployment. Global operators facing uncertainty make choices that negatively impact consumption, investment, and employment. Reduced exports further decrease the number of production workers.