We investigate a differentiated mixed duopoly with two cities where a public firm and a private firm are located in different cities. We find that in most cases the privatization level is higher under centralization (the national or regional government owns the public firm) than under decentralization (a city government owns the public firm). In particular, under decentralization, the public firm is fully owned by the city government if the substitutability of differentiated goods is relatively high. While the social welfare is higher under centralization, the welfare of the city with the public firm is higher under decentralization in most cases.

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The assumption of separate tax bases on which the literature of preferential tax regimes has been based is not necessarily the case. In this paper we assume a single type of capital, or money, invested in different industries as well as in different countries. Tax elasticities can differ across industries depending on production technologies and therefore governments have incentives to provide preferential tax treatment to certain industries. Then it is shown that preferential regimes may not be desirable in different senses from the literature. Copyright (c) 2010 the author(s). Journal compilation (c) 2010 RSAI.