A Model Of The Optimal Proportion Of State-Owned Economy

In the process of transition to a market economy country, how to adjust the relative size of the state-owned economy has been a core issue. Admittedly our former state-owned economy is not an optimal choice, but transformed into purely private economy may not be the best choice. This article hope to find an optimal proportion of state-owned economy in the whole economy based on our previous state-owned economy background.The proportion of state-owned economy can be divided into two aspects:the state-owned enterprises and state-owned capital. Compared with the information limitations in state-owned enterprises economy, the private economy can make full use of the social dispersed information. The former will lead the proportion of state-owned enterprises to an equilibrium level (as well as the upper limit). When the optimal proportion of state-owned capital is higher than this, the excess part should exist as shares of private enterprises. Through using the state-owned capital gains for public welfare, it will not only save tax costs but also provides an alternative means of adjusting economy for the government. Thus the optimal proportion of state-owned capital is determined. This paper constructs a Ramsey model in mixed economy to solve the government chosen optimal level of tax rates, public expenditure and proportion of state-owned capital. In addition, when comparing the welfare between the mixed economy and the pure private economy, it shows that if tax costs exist, the mixed economy is better whether in the total level of consumption or the consumption structure.Conclusions are as follows, Transformation into a pure private economy is not the best choice for our country. We should choose an optimal proportion of state-owned capital economy in order to maximize national welfare.