Showing papers on "Subsidy published in 1989"

Public Policies and the Misuse of Forest Resources

Abstract: Six contributors explore the role of governments in accelerating the rate of forest destruction by providing direct and indirect subsidies to support what would otherwise be non-commercial logging operations. Without these financial incentives, most timber operations in the tropics would cease. In a series of country-by-country investigations, including examples from the developed and developing worlds, this book documents the government policies that are leading to the misuse of forest resources. Each is written by an authority on the county, and each contains descriptive, analytical and empirical material on key policies and their effects. The final country analysis focuses on the United States, where the consequences of the subsidized timber sales by the US Forest Service from most of the national forests are discussed. The book concludes with an overview of the impact of forest policies and the role of bilateral and multilateral agencies in their formulation. By directing attention toward the political dimension involved in forest clearance, this book will provide a clearer insight into the basic reasons why forests continue to be destroyed despite the outcry raised by conservationists.

The Political Economy of Trade Policy

Abstract: International trade seems to be a subject where the advice of economists is routinely disregarded. Economists are nearly unanimous in their general opposition to protectionism, but the increase in U.S. protection in recent years in such sectors as automobiles, steel, textiles and apparel, machine tools, footwear and semiconductors demonstrates that economists lack political influence on trade policy. The type of protectionism chosen does not follow economists' advice, either. A frequently asked question on undergraduate trade exams is why a small country's welfare losses are less when it curtails imports with a tariff rather than by negotiating "voluntary" export-restraint agreements (VEAs) with foreign suppliers. Even though generations of students have correctly pointed out that the equivalent of the domestic tax revenues raised by a tariff is transferred as a windfall gain to foreign countries when VEAs are introduced, these agreements are now the preferred means by which countries pursue protectionism. Moreover, if the purpose of protection is to redistribute income to producers, production subsidies (financed by lump-sum taxes) dominate both tariffs and import quotas on efficiency grounds, since the consumption costs of protection are avoided. Yet governments generally prefer to assist industries by providing import protection rather than production subsidies. Economists have tended to attribute such disregard for their policy conclusions to a lack of economic education. However, while many consumers still do not seem to

Bidding for Firms

Abstract: Recently, Toyota sought a plant location in the United States. The $800-million plant will employ 3000 workers, and numerous states offered Toyota generous investment incentives, hoping this would induce Toyota to select their state. The Commonwealth of Kentucky won this competition, but the price was high: the present value of the payments exceeds $125 million. The payment of investment incentives for the Toyota plant is not unique. In 1976 Pennsylvania paid $75 million to attract a Volkswagen plan,; Nissan, Honda, and Mazda received generous investment incentives when locating plants in the United States. And this bidding is not limited to states. To attract the headquarters of the Presbyterian Church (USA), with its 1300 jobs and $38 million annual payroll, civic leaders in Louisville, Kentucky, offered the church a warehouse and $6.2 million for renovation of the structure, bidding the church away from Kansas City, Missouri.' In this paper, we contend that this competition may result from the average cost pricing of publicly provided goods and services.2 When the marginal cost of providing a firm and its workers with public services is less than the tax revenue they generate, a government may offer the firm subsidies that reduce the distortions the average cost pricing of the public service creates. Thus, this competition for industry is not a zero-sum game where the subsidies are only transfers from the government to the firm. Rather, these subsidies may facilitate the efficient location of industry.

Fertility, Employment, and Child-Care Costs

Abstract: A sample of labor-market and birth histories is used to estimate the effects of child-care costs on employment and fertility decisions. A reduced-form empirical analysis is performed, which is based on hazard functions for transitions among various fertility-employment states. Higher child-care costs result in a lower birth rate for nonemployed women but not for employed women. Higher child-care costs also lead to an increase in the rate of leaving employment and a reduction in the rate of entering employment. The results suggest that potential behavioral effects of child-care subsidies could be significant and should be taken into account when alternative child-care policies are being debated.

The price of wealth: business and state in labor remittance and oil economies

Abstract: This article contrasts the effects of state-controlled oil revenues and privately controlled labor remittances on institutional development, state capacity, and businessgovernment relations in Saudi Arabia and the Yemen Arab Republic. These two countries represent extreme cases of dependence on external capital in deeply divided societies presided over by fragile, emerging bureaucracies. By tracing the two cases through a pattern of economic boom (1973-83) and recession (1983-87), the study demonstrates that the type, volume, and control of capital inflows decisively influence the relative development of the bureaucracy's extractive, distributive, and regulatory capacities and affect the ability of the state to respond to economic crisis. In both cases, external capital inflows precipitated the decline of extractive institutions. However, oil revenues and labor remittances had divergent effects on businessgovernment relations, and this circumscribed the state's ability to implement austerity programs during the recession. During the crisis, the Saudi government's efforts to cut subsidies to the private sector and to implement extractive policies were blocked by the state-sponsored merchant class. In contrast, the Yemeni government instituted a thoroughgoing austerity package that targeted the independent merchant class. In both cases, external capital inflows did not augment the efficacy of those that controlled them. These paradoxical outcomes are explained by tracing the different effects of oil revenues and labor remittances on the distribution of economic opportunity in the public and private sectors and the resulting effects on the regional, tribal, and sectarian composition of the bureaucracy and the commercial class.

Pricing the priceless : art, artists, and economics

Abstract: Explain why is art usually an inferior investment to common stocks; how have artists through the centuries acted as entrepreneurs without sacrificing their art; what is the true meaning of the art auction; why does government subsidy make sense?

Sovereign debt repurchases: no cure for overhang

Abstract: We show, in a reasonably general model, that if a highly indebted country has good investment projects available to it, then it will not benefit from using any of its resources to buy back debt at market prices. Debt buybacks and debt-equity swaps only make sense for the country if these programs are heavily subsidized by creditors. This result holds for all buyback programs large and small, so long as they involve voluntary creditor participation and are not part of a larger deal including offsetting concessions from lenders. Our analysis therefore casts doubt on the popular argument that unilateral debt repurchases benefit HICs by relieving "debt overhang".

Exchange Rates and "Unfair Trade"

Abstract: An examination of the changing country pattern of dumping and subsidy complaints by U.S. companies over time suggests that exchange rate fluctuations are a significant factor in determining case filings, especially against Japanese companies. The inverse relationship observed between filings and the real external value of the U.S. dollar is consistent both with the traditional (or technical) interpretation of dumping and subsidy cases, and with the view that they are promoted by rent-seeking activities of lawyers and economists representing petitioners. While this result says nothing about the merits of any particular case, it cautions that the prevalence of "unfair trade" is not exogenous with respect to broader macroeconomic considerations. Copyright 1989 by MIT Press.

The Enabling State: Modern Welfare Capitalism in America

Abstract: Studies of the welfare state have formed an important part of public policy research in America since the Second World War. The Enabling State reconsiders the scope of social welfare transfers, how they are delivered, and whom they benefit. In addition to presenting an analysis of direct public expenditures, the authors examine how welfare benefits are derived from the full range of modern social transfers, including tax expenditures, credit subsidies, and those induced by regulatory activity. The work also provides an account of the effect of the `commercialization of social welfare', that is, increased public reliance on private enterprise and market-orientated projects for its welfare provisions.

Negotiating Reductions in Agricultural Support: Implications of Technology and Factor Mobility

Abstract: This paper highlights the joint significance of agricultural technology and factor mobility in determining the impact of changing support policies. The impact of across-the-board reductions in farm support on output, exports, employment, and land values will vary systematically across countries, depending on their relative reliance on export, output, and input subsidies. Furthermore, considerable maneuvering room exists, even after an aggregate reduction in support is agreed upon. For example, the aggregate U.S. producer subsidy equivalent could be reduced, while leaving unchanged the demand for farm labor, by shifting the mix of remaining subsidies toward inputs which are complementary

The external costs of a sedentary life-style.

Abstract: Using data from the National Health Interview Survey and the RAND Health Insurance Experiment, we estimated the external costs (costs borne by others) of a sedentary life-style. External costs stem from additional payments received by sedentary individuals from collectively financed programs such as health insurance, sick-leave coverage, disability insurance, and group life insurance. Those with sedentary life-styles incur higher medical costs, but their life expectancy at age 20 is 10 months less so they collect less public and private pensions. The pension costs come late in life, as do some of the medical costs, and so the estimate of the external cost is sensitive to the discount rate used. At a 5 percent rate of discount, the lifetime subsidy from others to those with a sedentary life style is $1,900. Our estimate of the subsidy is also sensitive to the assumed effect of exercise on mortality. The subsidy is a rationale for public support of recreational facilities such as parks and swimming pools and employer support of programs to increase exercise.

Growth and Welfare in A Small Open Economy

Abstract: We construct a model of growth based on endogenous technological change in a small, open economy. Entrepreneurs develop new intermediate products whenever the present value of potential profits exceeds the cost of R&D. Diversity of intermediates contributes to total factor productivity in the production of final goods. The economy produces two such final goods, and trades these at exogenously given world prices. We study the welfare implications of R&D subsidies and commercial policy. There exists an optimal subsidy to R&D that speeds growth relative to the market-determined rate. The optimal subsidy achieves the first-best rate of growth, but not the first-best level of welfare. Small tariffs and export subsidies also affect both growth and welfare. Growth may increase or decrease, depending upon which sector is promoted by the trade policy. But an increase in the growth rate is neither necessary nor sufficient for a trade policy to improve welfare. Finally, we compare tariffs and quotas, when the latter give rise to rent-seeking behavior. The diversion of resources from innovative activities to rent seeking can have dire implications for growth and welfare.

Regulation in the european community

Abstract: All governments regulate economic activity in their own countries. The Single European Market will involve a significant transfer of regulatory activity from member states to the European Community, as well as the initiation of regulatory activity in certain areas that have not previously been subject to regulation at all (including the activities of member states themselves, as in taxation or the provision of subsidies to industry). Why should governments wish to make such a transfer of powers? What do they have to gain?

The impact of ideas on trade policy: the origins of U.S. agricultural and manufacturing policies

Abstract: Since the close of World War II, the United States has supported contradictory trade policies. In manufacturing, the United States has fostered a liberal trade regime, spurning government involvement in market transactions. In agriculture, it has sanctioned policies of import restrictions, export subsidies, and import fees. This variation is rooted in decisions that were made in the 1930s and institutionalized in the 1940s. In the wake of the Great Depression, policymakers concluded that state intervention helped agriculture and hurt industry. This article argues that the choice of government policy and its appropriateness to the economic problems faced by each sector reflect the accepted knowledge at the time. Neither liberalization nor subsidization was inevitable; both were economically viable options. However, central decision-makers made choices that were often based on inaccurate beliefs about the utility of different policy options.

Markets for Federal Water: Subsidies, Property Rights, and the Bureau of Reclamation

Abstract: Introduction Part I: History and Evolution of Subsidies 1. History of Federal Involvement in the Reclamation Movement 2. Irrigation Subsidies in the Reclamation Program 3. Administrative Extension of Subsidies: The Central Valley Project 4. Attempts to Limit the Reclamation Subsidy: The Reclamation Reform Act of 1982 Part II: Policy Recommendations to Facilitate Water Marketing 5. Promoting More Efficient Use of Federally Supplied Water 6. Federal Policy Changes to Facilitate Voluntary Water Transfers Part III: Case Studies of Potential Water Transfers 7. Water Contamination Problems at Kesterson Reservoir 8. Water Transfer Possibilities Involving the Central Arizona Project 9. Quality of Water in the Colorado River and the Yuma Desalting Plant 10. The Prospects for Leasing Compact Rights on the Colorado River Part IV: Concluding Reflections Appendix: U.S. Department of the Interior's 'Principles Governing Voluntary Water Transactions'

U.s. Transit subsidy policy: in need of reform.

Abstract: Public transit in the United States has depended increasingly on public subsidies since the inception ofthe federal mass transit assistance program in the early 1960s. The subsidies are associated with declining efficiency and labor productivity, as urban transit systems have overcapitalized, simplified fare structures, and extended service into sparse suburban markets. Despite these subsidies, transit has not proved successful in countering the effects on its market of increased automobile ownership and use and of decentralizaton of residences and places of employment.

A database for trade liberalization studies

Abstract: Studies of global changes in trade and domestic agricultural policies require a global database. This report presents such a database for 22 commodities and 36 regions of the world. The database includes elasticities of supply and demand as well as quantity and price data for 1984 and 1986. Summary measures of support to agriculture are given in the form of producer and consumer subsidy equivalents.

Disciplining trade finance: the OECD Export Credit Arrangement

Abstract: The salience of tariffs, quotas, and other import restrictions in current discussions of trade policy obscures what may well become a more significant form of government intervention: subsidized export promotion. Over the past two decades, subsidized trade finance has been one of the most widely used instruments of export promotion. This article offers an historical description and a theoretical explanation for the success of the Organization for Economic Cooperation and Development (OECD) Export Credit Arrangement, an international regime restricting the provision of subsidized trade finance. The explanation emphasizes three factors: the structure of government institutions, the relative power of states, and the functional value of information. More generally, the analysis demonstrates the inherent weaknesses of monocausal explanations of international cooperation and the advantages of explanations based on a conception of international cooperation as a multistage, process, each stage of which may be explained by a separate theory.

Uncertainty and the choice of trade policy in oligopolistic industries

Abstract: This paper investigates the design of trade policies in an uncertain world. Governments in each of two countries select between direct quantity controls and subsidies in an attempt to shift profits in favour of domestic, imperfectly competitive firms. The equilibrium of this bilateral policy game depends critically on the variability of the environment. In a world of certainty, both governments would choose to regulate the behaviour of their firms through direct quantity controls. With a sufficient amount of uncertainty, both governments regulate their firms through subsidies. This result reflects an important tradeoff between the strategic advantages of direct quantity controls and flexibility gained by the use of subsidies

Trade Adjustment Assistance And Pareto Gains From Trade

Abstract: In a model where all factors of production are imperfectly mobile, we argue that the Dixit-Norman scheme of commodity taxes may not lead to strict Pareto gains from trade. Rather, this scheme must be augmented by policies which give factors an incentive to move: hence, the role for trade adjustment assistance (TAA). We demonstrate that by knowledge of the distribution of adjustment costs across individuals, the government can offer a single TAA subsidy to all individuals willing to move between industries, and maintain a non-negative budget. The TAA subsidy, combined with the Dixit-Norman pattern of commodity taxes, can lead to Pareto gains from trade under the conditions we identify.

Measuring Nontariff Trade Policies

Abstract: This paper surveys and critiques various methods of measuring nontariff trade measures (NTMs) for the purpose of determining which seem most promising for facilitating the process of reducing the trade-distorting effects of such policies through multilateral negotiations. Four measurement methods are analyzed: price-impact measures, quantity-impact measures, frequency-type measures, and welfare measures. The general conclusion is that, despite a host of difficulties, theoretical and empirical analysis has progressed sufficiently far to enable reasonable measures of nontariff policies to be made that are useful for assessing relative sectoral protection across countries and monitoring changes in protection and subsidization levels over time. Tariff and subsidy equivalents, preferably determined by directly comparing distorted and non-distorted prices, are the most useful forms of measurement, since they focus on the price-distorting effects of NTMs and are also concepts with which public and private officials are already familiar. However, the various other types of measures can be valuable in supplementing the information obtained from tariff and subsidy equivalents.

Export subsidies and price competition

Abstract: The binding of this item renders some marginal text unreadable. A hard copy is available in UCD Library at GEN 330.08 IR/UNI

The Festival Marketplace as Public Policy: Guidelines for Future Policy Decisions

Abstract: The festival marketplace is one type of large development project being undertaken by partnerships of governments and private businesses. In many cases these projects are risky and heavily subsidized by the public sector. The question that prompted my research was whether providing a public subsidy for these large development projects is good public policy. Do their impacts usually justify the public risk and expenditure? Little analytical work has been done on this question by either practitioners or academics. To answer the question, I have used the available literature and an in-depth case study of Underground Atlanta, a festival marketplace scheduled to open in 1989. I first describe key dimensions of evaluating such projects, then note the obstacles to performing a defensible evaluation. I conclude with a number of guidelines for planners and local politicians involved in making decisions on these large-scale development projects.

The determinants of off-budget activity of state and local

Abstract: government as shown by a rich data set that permits the testing of a large number of hypotheses. Many competing and complementary hypotheses have been offered to explain public sector growth.' Following the 1970s "taxpayer revolts," many studies have examined the abilities of various constraints to control the public sector size and, more specifically, government spending.2 As the hypotheses and tests become more sophisticated, the importance of another research area has become increasingly evident: an appropriate measure of public participation in the economy is quite elusive. While important, government employment data and simple government expenditure-to-GNP ratios are incomplete measures of government size. Not only are governments financed by many sources (legislated taxes, inflation-related taxes, grants, debt-issue and off-budget receipts), but also many areas of government activity elude simple measurement (regulations, resource allocation via subsidy, and legislation). Clearly, the issue of measurement is important for understanding the public sector as well as the ability to empirically test relevant hypotheses. This paper examines an often-overlooked, or well-hidden, facet of the public sector. It examines the "off-budget" sectors' relation to other less-hidden facets of the public sector. Bennett and DiLorenzo (1982) is the seminal work in this area. Arguing that local governments evade tax- and expenditurelimitations by placing vast amounts of expenditures off-budget, Bennett and DiLorenzo provide two important pieces of information in the study of the

Technology Adoption and Agricultural Price Policy

Abstract: Market interventions such as price supports or fertilizer subsidies can lead to gains from speeding up adoption of new technologies, but the policies distort resource allocation. A framework is developed for optimizing policies in light of the adoption-allocation trade off. Based on adoption coefficients and production parameters from third world agriculture, levels and duration of policies are estimated. Sensitivity analyses are performed. Gains are small at best and may be zero or negative in view of farmer costs of adjustment and deadweight losses from taxes. profit, technology adoption. If new technologies are desirable, why not use price supports or input subsidies to encourage faster technology adoption? While frequently raised in policy deliberations, this question has received little serious analysis. Particularly neglected has been the conflict or trade off between (a) gains in output as producers switch from old to new technologies and (b) the losses from resource use distortions brought about by price policies. When output prices are raised, or prices of inputs such as fertilizer are lowered, the