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On the scale of the country as a whole, the selling off of profitable publicly owned undertakings will make no difference to the wealth of the nation, since the GDP will remain unaltered. However, the distribution of wealth will change since profits no longer go in full directly to the government, but will be attributable
to the shareholders after taxes have been paid.
The proceeds of sale will provide a future stream of potential cash flows (eg reduced government debt
servicing costs) for the government that will, at least partially, offset the loss of revenues, and taxes will be- received on the privatized companies' profits. These potential inflows are likely to be smaller than the former profit stream, and therefore the taxpayer who is not also a shareholder will lose out. However, in practice it has generally been the case that profits have increased following privatization, and in this situation it is often true that taxes paid exceed former profits. As a result, the government and the taxpayer benefit.
Thus it is not sufficient to look at the simple effect of privatization on the distribution of revenues: it is also necessary to consider the likely effect of the changes on the efficiency and profitability of the company.
Kavungya answered the question on April 14, 2021 at 19:08
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