Showing papers on "Subsidy published in 1997"

Safety Net Programs and Poverty Reduction: Lessons from Cross-Country Experience

Abstract: The need for social safety nets has become a key component of poverty reduction strategies. Over the past three decades several developing countries have launched a variety of programs, including cash transfers, subsidies in-kind, public works, and income-generation programs. However, there is little guidance on appropriate program design, and few studies have synthesized the lessons from widely differing country experiences. This report fills that gap. It reviews the conceptual issues in the choice of programs, synthesizes cross-country experience, and analyzes how country- and region-specific constraints can explain why different approaches are successful in different countries.

The Fundamental Divergence Between the Private and the Social Motive to Use the Legal System

Abstract: The legal system is an expensive social institution, raising the question of whether the amount of litigation is socially appropriate. The thesis developed here is that it is not—because of fundamental differences between private and social incentives to use the legal system. These differences permeate litigation, affecting decisions about the bringing of suits, settlement versus trial, and trial expenditures. The private‐social divergence is attributable to two externalities: when a party makes a litigation decision, he does not take into account the legal costs that he induces others to incur (a negative externality), nor does he recognize associated effects on deterrence and certain other social benefits (a positive externality). Consequently, the privately determined level of litigation can either be socially excessive or inadequate and may call for corrective social policies. A variety of policies are discussed, including taxation versus subsidy of suit, fee‐shifting, and promotion versus di...

Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies

Abstract: This paper studies the effects of subsidies on durable goods markets. In particular, we study a recent policy in France in which the governments of Balladur and Jupp‚ subsidized the replacement of old cars with new ones. To study this policy, we construct a dynamic stochastic discrete choice model of car ownership at the household level. The resulting decision rules and equilibrium conditions are used to estimate, using aggregate data, the underlying parameters of the model. These policy functions are used to evaluate the short and long run effects of the French policies. We find that these policies do stimulate the automobile sector in the short run but, through the induced changes in the cross sectional distribution of car ages, create the basis for subsequent low activity. Further, while these policies increase government revenues in the short run, revenues in the long run are lower relative to a baseline without intervention.

Merger Policies and Trade Liberalization

Abstract: This paper is about the interactions between what is traditionally considered trade policy and a narrow but important aspect of competition policy, namely merger policy. We focus on links between merger policies and trade liberalization. We put special emphasis on the topical issue of the role that international agreements such as the GATT play when merger policies are nationally chosen. Of particular concern is the possibility that liberalization of international trade will induce countries to increasingly use competition policies to promote national interests at the expense of others. We examine the incentives for a welfare maximizing government to make such a substitution. Interpreting merger policy as a choice of degree of industrial concentration, we investigate how the merger policy that is optimal from the point of view of an individual country is affected by restrictions on the use of tariffs and export subsidies.

Income and environmental R&D: Empirical evidence from OECD countries.

Abstract: This paper extends previous empirical studies of the environmental Kuznets curve by examining the role of rising incomes in promoting development of new technologies directed toward environmental improvements. The main result, based on an analysis of data from 19 OECD countries for the period 1980–94, shows that the income elasticity of public research and development funding for environmental protection is positive, and may be close to unity. This finding suggests that emissions of at least some pollutants may decline with income after a threshold level of income is reached. However, this should be interpreted cautiously in light of: (1) the small size of public research and development funding relative to overall spending on environmental protection, (2) the ability of a country to substitute between public and private research and development expenditures, as well as among alternative policy instruments, and (3) the possibility that public research and development funding may be a form of industrial subsidy in some countries.

Agricultural policy reform in the European Community: a three-level game analysis

Abstract: Since the beginning of the General Agreement on Tariffs and Trade (GATT) Uruguay Round the European Community (EC) has twice attempted to reform the Common Agricultural Policy (CAP), resulting in the February 1988 stabilizers reform package and the May 1992 MacSharry reform package. Curiously, these two attempts at reform resulted in vastly different outcomes. The 1988 reform was incremental in nature and functioned mainly as a stopgap measure. The 1992 reform, however, called for a shift from nontransparent consumer subsidies to transparent taxpayer subsidies. This shift represented a fundamental change in the philosophy underlying the CAP and laid the groundwork for an agreement in the Uruguay Round. This article examines the conditions under which this important policy shift occurred. It employs an interpretative case study method that demonstrates the empirical value of Robert Putnam's two-level game model when it is expanded to consider the simultaneous interaction of negotiations at three levels: the domestic level, the EC level, and the international level. The study concludes that the power and heterogeneity of interest groups at various levels of the game matter, that the real and perceived costs of no agreement affect the degree of substantive reform, and, finally, that a three-level interactive strategy is important in achieving an acceptable agreement at each level of the game.

Concession revenue and optimal airport pricing

Abstract: In recent years airports have been under growing pressure to become financially self-sufficient and to pursue profit maximization in their non-aeronautical or concession operations. In this paper we examine the optimal pricing in a model where concession and aeronautical operations of an airport are considered together with an overall break-even constraint. We find that the optimum solution may require a subsidy from concession to aeronautical operations. However, such a cross-subsidy may or may not restore marginal-cost pricing on aeronautical operations. On the other hand, social welfare can be higher when an airport is allowed to make profits in concession operations than when marginal-cost pricing is imposed on concession operations.

Transfers, Social Safety Nets, and Economic Growth

Abstract: This paper analyzes the role of social safety nets in the form of redistributional transfers and wage subsidies. It argues that public welfare programs can be viewed as devices to prevent crime or disruption because they tend to increase the opportunity cost of engaging in crime or disruptive activities. It is shown that, in the presence of a leisure choice, wage subsidies may be better than pure transfers. Using a simple growth model, the optimal size of the public welfare program is found, and it is argued that public welfare should be financed with income (not lump-sum) taxes, despite the fact that income taxes are distortionary. The intuition for this result is that income taxes act as a user fee on congested public goods and transfers can be thought of as productive public goods subject to congestion.

Democratic Choice of an Education System: Implications for Growth and Income Distribution

Abstract: We use an OLG model to examine democratic choice betweentwo modes of government support for education: subsidies forprivately purchased education and free uniform public provision.We find little conflict between democracy and growth: the samefactors that generate popular support for subsidization overfree uniform provision—large external benefits, a largeexcess burden, and little inequality—also favor its relativegrowth performance. Furthermore, restricting the franchise toan upper-income elite may also reduce growth. Two extensionsexamine the effect of intergenerational mobility and indicatethe theoretical possibility of periodic swings in the balancebetween public and private spending.

Comparative Housing Policy: Government and Housing in Advanced Industrialized Countries

Abstract: Introduction - Housing Policy: Origins and Variations - Undertaking Comparative Housing Policy Studies - Policy Options and Frameworks - Policy for What Ends? - Exploring Whole Housing Systems - Housing Development and Construction - Housing Finance - Housing Subsidies - Home Ownership - Social Housing - Private Renting - Which Policies Work Best?

Subsidizing unsustainable development : undermining the Earth with public funds

Abstract: This report on economic incentives is a product of the Earth Councils program to promote economic reforms required for sustainable development including improved economic instruments the removal of inefficient subsidies and the integration of sustainability criteria into economic policies. The report consists of six chapters. Chapter 1 discusses subsidy as a measure that keeps prices for consumers below the market level or keeps prices for producers above market level. Chapter 2 focuses on the importance of water. Chapter 3 enumerates ways to maintain agricultural productivity. Chapter 4 elaborates on consumable energy such as electricity and the need to lower its consumption. Chapter 5 discusses the impact of road accidents and automotive pollution to population. Finally chapter 6 provides recommendations to help eradicate the subsidy addiction.

The social rented sector, housing and the welfare state in the UK

Abstract: Recent discussions of the social rented sector in the UK have placed considerable emphasis on the restructuring and declining size of the tenure, privatisation, a shift from object to subject subsidies, residualisation and the increased significance of the poverty trap for tenants. Against this background, and in the light of the view that major public sector investment is unlikely in the future, the policy debate has shifted further towards concern with transfer of stock out of the public sector. This paper reviews key changes in the role of social rented sector housing and the background to these debates. It argues that it is important to relate the development of council housing to the wider structure of the welfare state; its position within the public sector; the changing structure of the private sector in housing; and the changing economic, social and demographic context. These aspects are of key importance to debates about residualisation and the future of the sector.

Estimating the inefficiency in the Norwegian bus industry from stochastic cost frontier models

Abstract: A stochastic cost frontier function based on data from 170 of the 175 Norwegian subsidized bus companies is estimated under two alternative presumptions regarding the distribution of the inefficency among the bus operators. When the inefficiency is assumed to be half-normally distributed, the average inefficiency in the industry is estimated to be 13.7 per cent. This calculated value is nearly halved (7.2 per cent) when the exponential distribution is applied, while the ranking of the companies according to inefficiency is unchanged. By regressing the estimated inefficiency values for each company on some exogenous variables describing its ownership structure and the subsidy policy which it faces, it is seen that inefficiency of the companies which negotiate with the public authorities over the subsidy amounts is slightly higher than the inefficiency of the companies which face a subsidy policy based on cost norms. Our analysis gives, however, no significant differences in the efficiency between privately owned bus companies and publicly owned bus operators, and shows only minor economies of scale.

Rural-Urban Disparity and Sectoral Labor Allocation in China

Abstract: This paper examines China's rural-urban segmentation and its causes in the context of economic reforms. Household survey and aggregate data indicate a V-shaped process in which the rural-urban consumption and income differentials decreased between 1978-85, but then have continually increased historically high levels. This sectoral division is consistent with production function estimates based on provincial data that reveal higher labor productivity in urban/state-owned industries than in rural industries and agriculture. To explain the V-shaped change, we argue that the precedent of successful rural reforms raised farmers' relative earnings, but the remaining obstacles for an efficient sectoral allocation of labor have prevented China from eliminating dualism. The recent financial policies consisting of urban price subsidies and increased investment credits have also had influential distribution effects biased against the rural sector.

An Evaluation of the Swedish Active Labor Market Policy: New and Received Wisdom

Abstract: About 3% of GNP is spent on government labor market programs in Sweden, compared to 2% in Germany and less than 0.5% in the U.S. In Sweden these programs include extensive job training, public sector relief work, recruitment subsidies, youth programs, mobility bonuses, and unemployment benefits. Using county-level data, we provide new evidence that public relief workers displace other workers, especially in the construction sector. Our review of the previous literature suggests that job training programs have small effects on wages and re-employment in Sweden, but precise inferences are difficult because of small sample sizes. We also investigate alternative reasons for the stability of the Beveridge Curve in Sweden, and compare regional evolutions of employment and unemployment in Sweden and the U.S. Lastly, we present cross-country analysis for 1993 which, contrary to studies that use earlier data, shows that the extent of a country's active labor market programs is positively associated with the national unemployment rate.(This abstract was borrowed from another version of this item.)

R&D Spillovers and the Case for Industrial Policy in an Open Economy

Abstract: In this paper we consider the case for subsidies towards firms which generate RD RD and international spillovers which benefit foreign firms may justify a subsidy, even though the government cares only about the profits of home firms.

Enterprise restructuring and social benefits

Abstract: Soviet era firms provided generous social benefits, including health and child care. Despite recent cuts, firm survey data show that benefits have remained a major component of total compensation. With benefits largely firm-specific and firms dominated by insiders, continuing attachment of workers as well as widespread informal sector participation has resulted. This has impeded restructuring, in part by generating significant set-up costs for new private firms. We simulate the effects of a cut in subsidies to benefits provision. We show that while this leads to falls in benefits and employment and an increase in wages, the outcome critically depends on the availability of alternative providers. The key to cushioning these adverse consequences is the stimulation of a market in benefits provision. Given initial conditions, rapid removal of benefits supports will require transitional income support scheme of transitional support and show that it can be financed from the savings from removal of current subsidies to benefits.

Subsidies and inefficiency: stochastic frontier approach

Abstract: U.S. urban transit systems receive operating and capital subsidies from various levels of government. Each firm minimizes its cost net of subsidies subject to its production function. The first order conditions from this minimization give a set of equations that are estimated using a stochastic frontier approach. From the results are calculated technical and allocative inefficiencies. The allocative inefficiencies are further decomposed among two sources, subsidies and factors internal to the firm. The analysis reveals large allocative inefficiencies between labor, fuel, and capital. Furthermore, it finds that subsidies lead to excess use of labor relative to capital and excess use of fuel relative to capital and labor. Also, most allocative inefficiencies in firms are due to internal factors and not subsidies, and the sizes of the inefficiencies vary substantially among transit firms.

Public Subsidies to Stadiums: Do the Costs Outweigh the Benefits?:

Abstract: This article reexamines the costs and benefits to cities of publicly subsidized stadiums by measuring the welfare gain of a stadium. Previous research has shown that the economic impact of a stadiu...