Showing papers on "Subsidy published in 2007"

4. Industrial Policy for the Twenty-first Century

Abstract: Unlike what is commonly believed, the last two decades have not witnessed the twilight of industrial policy. Instead, incentives and subsidies have been refocused on exports and direct foreign investment, in the belief that these activities are the source of significant positive spillovers. The challenge in most developing countries is not to rediscover industrial policy, but to redeploy it in a more effective manner. This paper lays out an institutional framework for accomplishing this objective. A central argument is that the task of industrial policy is as much about eliciting information from the private sector on significant externalities and their remedies as it is about implementing appropriate policies. The right model for industrial policy is not that of an autonomous government applying Pigovian taxes or subsidies, but of strategic collaboration between the private sector and the government with the aim of uncovering where the most significant obstacles to restructuring lie and what type of interventions are most likely to remove them.

The relationship between R&D collaboration, subsidies and R&D performance: Empirical evidence from Finland and Germany

Abstract: This study focuses on the impact of innovation policies and R&D collaboration in Germany and Finland. We consider collaboration and subsidies as heterogeneous treatments, and perform an econometric matching to analyze R&D and patent activity at the firm level. In general, we find that collaboration has positive effects. In Germany, subsidies for individual research do neither exhibit a significant impact on R&D nor on patenting, but the innovative performance could be improved by additional incentives for collaboration. For Finnish companies, public funding is an important source of finance for R&D. Without subsidies, recipients would show less R&D and patenting activity, whilst those firms not receiving subsidies would perform significantly better if they were publicly funded. Copyright © 2007 John Wiley & Sons, Ltd.

Two-Sided Markets, Competitive Bottlenecks, and Exclusive Contracts

Abstract: We provide a framework for analyzing two-sided markets that allows for different degrees of product differentiation on each side of the market. When platforms are viewed as homogenous by sellers but heterogeneous by buyers, we show that “competitive bottlenecks” arise endogenously. In equilibrium, platforms do not compete directly for sellers, instead choosing to compete indirectly by subsidizing buyers to join. Sellers are left with none of the gains from trade. Despite this, it is sellers who choose to purchase from multiple platforms (multihome). Finally, the role of exclusive contracts to prevent multihoming is explored.

Meta-analysis: trophic level, habitat, and productivity shape the food web effects of resource subsidies

Abstract: Studies of the effects of cross-habitat resource subsidies have been a feature of food web ecology over the past decade. To date, most studies have focused on demonstrating the magnitude of a subsidy or documenting its effect in the recipient habitat. Ecologists have yet to develop a satisfactory framework for predicting the magnitude of these effects. We used 115 data sets from 32 studies to compare consumer responses to resource subsidies across recipient habitat type, trophic level, and functional group. Changes in consumer density or biomass in response to subsidies were inconsistent across habitats, trophic, and functional groups. Responses in stream cobble bar and coastline habitats were larger than in other habitats. Contrary to expectation, the magnitude of consumer response was not affected by recipient habitat productivity or the ratio of productivity between donor and recipient habitats. However, consumer response was significantly related to the ratio of subsidy resources to equivalent resources in the recipient habitat. Broad contrasts in productivity are modified by subsidy type, vector, and the physical and biotic characteristics of both donor and recipient habitats. For this reason, the ratio of subsidy to equivalent resources is a more useful tool for predicting the possible effect of a subsidy than coarser contrasts of in situ productivity. The commonness of subsidy effects suggests that many ecosystems need to be studied as open systems.

Is the global carbon market working

Abstract: The Clean Development Mechanism can be viewed not only as a market, but also as a subsidy and a political mechanism. Michael Wara argues that it has been most effective, so far, in achieving its political goals.

Should Urban Transit Subsidies Be Reduced

Abstract: This paper derives intuitive and empirically useful formulas for the optimal pricing of passenger transit and for the welfare effects of adjusting current fare subsidies, for peak and off-peak urban rail and bus systems. The formulas are implemented based on a detailed estimation of parameter values for the metropolitan areas of Washington (D.C.), Los Angeles, and London. Our analysis accounts for congestion, pollution, and accident externalities from automobiles and from transit vehicles; scale economies in transit supply; costs of accessing and waiting for transit service as well as service crowding costs; and agency adjustment of transit frequency, vehicle size, and route network to induced changes in demand for passenger miles. The results support the efficiency case for the large fare subsidies currently applied across mode, period, and city. In almost all cases, fare subsidies of 50 percent or more of operating costs are welfare improving at the margin, and this finding is robust to alternative assumptions and parameters.

Evaluating the Impact of Public Subsides on a Firm's Performance: A Quasi-Experimental Aproach

Abstract: Many regional governments in developed countries design programs to improve the competitiveness of local firms. In this paper, we evaluate the effectiveness of public programs whose aim is to enhance the performance of firms located in Catalonia (Spain). We compare the performance of publicly subsidised companies (treated) with that of similar, but unsubsidised companies (non-treated). We use the Propensity Score Matching (PSM) methodology to construct a control group which, with respect to its observable characteristics, is as similar as possible to the treated group, and that allows us to identify firms which retain the same propensity to receive public subsidies. Once a valid comparison group has been established, we compare the respective performance of each firm. As a result, we find that recipient firms, on average, change their business practices, improve their performance, and increase their value added as a direct result of public subsidy programs.

The determinants and consequences of child care subsidies for single mothers in the USA

Abstract: This paper provides an analysis of child care subsidies under welfare reform in the USA. We used data from the 1999 National Survey of America's Families to analyze the determinants of receipt of a child care subsidy and the effects of subsidy receipt on employment, school attendance, unemployment, and welfare participation. Ordinary least-squares estimates that treat subsidy receipt as exogenous show an effect of subsidy receipt on employment of about 13 percentage points. Two-stage least-squares estimates that treat subsidy receipt as endogenous and use county dummies as identifying instruments show an effect of 33 percentage points on employment, 20 percentage points on unemployment, and no effects on schooling and welfare receipt.

Trade Policy under Firm-Level Heterogeneity in a Small Economy

Abstract: In this paper we explore the effect of trade policy on productivity and welfare in the now standard model of firm-level heterogeneity and product differentiation with monopolistic competition. To obtain sharp results, we restrict attention to an economy that takes as given the price of imports and the demand schedules for its exports (a "small economy"). We first establish that welfare can be decomposed into four terms: productivity, terms of trade, variety and curvature, where the latter is a term that captures heterogeneity across varieties. We then show how a consumption subsidy, an export tax, or an import tariff allow our small economy to deal with two distortions that we identify and thereby reach its first best allocation. We also show that an export subsidy generates an increase in productivity, but given the negative joint effect on the other three terms (terms of trade, variety and curvature), welfare falls. In contrast, an import tariff improves welfare in spite of the fact that productivity falls.

Fuel Ethanol Subsidies and Farm Price Support

Abstract: Ethanol subsidies are well established in U.S. policy and have high priority in corn growers' political agenda. This paper develops a vertical market model of ethanol, byproducts, and corn which is used to analyze whether corn growers would prefer the government's subsidy dollar to be spent directly on corn subsidies (though deficiency payments) rather than on a subsidy on ethanol made from corn. Because the subsidy dollar has to be shared with ethanol manufacturers under the ethanol subsidy, it is to be expected, and the model confirms, that a dollar spent on a direct corn subsidy increases corn growers' producer surplus more than an a dollar spent on an ethanol subsidy under many plausible values of the relevant parameters. But there are equally plausible parameter values under which the ethanol subsidy is preferred by corn growers. The economics of this result turn mainly on the price discrimination an ethanol subsidy creates between ethanol and corn used for feed and export purposes, reducing the buyers' price of ethanol and byproducts but increasing the price of corn fed and exported. This enables producers of corn and ethanol to increase their joint producer surpluses above the total value of subsidies paid. The paper also analyzes the social cost (deadweight loss) of these subsidies, and finds the ethanol subsidy to generate deadweight losses likely to be in the billions of dollars annually.

Small Firm Finance, Credit Rationing, and the Impact of SBA-Guaranteed Lending on Local Economic Growth

Abstract: Increasingly, policymakers look to the small business sector as a potential engine of economic growth. Policies to promote small businesses include tax relief, direct subsidies, and indirect subsid...

Entry, Exit, and Plant-Level Dynamics over the Business Cycle

Abstract: This paper analyzes the implications of plant-level dynamics over the business cycle. We first document basic patterns of entry and exit of U.S. manufacturing plants, in terms of employment and productivity, between 1972 and 1997. We show how entry and exit patterns vary during the business cycle, and that the cyclical pattern of entry is very different from the cyclical pattern of exit. Second, we build a general equilibrium model of plant entry, exit, and employment and compare its predictions to the data. In our model, plants enter and exit endogenously, and the size and productivity of entering and exiting plants are also determined endogenously. Finally, we explore the policy implications of the model. Imposing a firing tax that is constant over time can destabilize the economy by causing fluctuations in the entry rate. Entry subsidies are found to be effective in stabilizing the entry rate and output.

Financiers vs. Engineers: Should the Financial Sector Be Taxed or Subsidized?

Abstract: I study the allocation of human capital in an economy with production externalities, financial constraints and career choices. Agents choose to become entrepreneurs, workers or financiers. Entrepreneurship has positive externalities, but innovators face borrowing constraints and require the services of financiers in order to invest efficiently. When investment and education subsidies are chosen optimally, I find that the financial sector should be taxed in exactly the same way as the non-financial sector. When direct subsidies to investment and scientific education are not feasible, giving a preferred tax treatment to the financial sector can improve welfare by increasing aggregate investment in research and development.

ICT assimilation and SME expansion

Abstract: Information and communication technology (ICT) is acknowledged to play an important role in the growth of enterprises by contributing directly to profitability and by providing foundations for the evolution of operations from a micro to a medium level. A number of factors play a role in the successful deployment of ICT for growth and these form a complex system encompassing environmental, technical and human factors. This paper discusses the key variables and challenges facing organisations in harnessing ICT for growth, as evidenced in the literature and through a survey of small and medium sized enterprises (SMEs). Some of the key system dynamics are proposed. The impact and shortfall of expansion-friendly ICT policies are presented and indicate a need for more general support to the sector to accompany government subsidies. Copyright © 2007 John Wiley & Sons, Ltd.

Commuting Subsidies With Two Transport Modes

Abstract: We study a simple model of commuting subsidies with two transport modes. City residents choose where to live and which mode to use. When all land is owned by city residents, one group gains from subsidies what the other loses. With absentee landownership, city residents as a group gain at the expense of landowners. Subsidies toward different modes have different effects, however, for instance, in one case, rich automobile drivers suffer from transit subsidies, while poor transit users may benefit from subsidies to automobiles.

Childcare Subsidies, Wages, and Employment of Single Mothers

Abstract: This paper develops and estimates a model for the choice of part-time and full-time employment and the decision to pay for childcare among single mothers. The results indicate that a lower childcare price and a higher full-time wage rate both lead to an increase in overall employment and the use of paid childcare. The part-time wage effects are found to be too small to have significant behavioral implications. An analysis of cost-effectiveness indicates that the additional hours of work generated per dollar of government expenditure is larger for a childcare subsidy than a wage subsidy.

Export Processing Zones

Abstract: This paper studies export processing zones (EPZs) which have become increasingly popular as a policy tool for development and export-oriented growth, and can be found in 130 countries around the world. The report consists of four parts. Part I provides a broad overview on the current use of EPZs, including the evolution of EPZ policy, their objectives and how these are achieved, and the incentives commonly offered. It presents case studies from China, India and Russia illustrating new trends and policies. Part II then provides a review of the economic costs and benefits of EPZs with particular focus on their trade and employment implications. Part III presents an analysis of how common EPZ policies relate to trade rules. It reviews the relationship between EPZs and the WTO Agreements such as the WTO Agreement on Subsidies and Countervailing Measures (ASCM), followed by a discussion of how EPZs are commonly treated in RTAs. Part IV concludes. EPZs are a sub-optimal policy from an economic point of view since it benefits the few and distorts resource allocation, but may be useful as a stepping stone to trade liberalisation on a national basis. Governments should consider all available policy options, and conduct a thorough cost/benefit analysis before implementation.

Environment, Directed Technical Change and Economic Policy

Abstract: We study the effects of an economic policy in an endogenous growth general equilibrium framework where production of consumption goods requires two resource inputs: a polluting non-renewable resource and a non-polluting labour resource. The use of the former contributes to the accumulation of pollution in the atmosphere, which affects welfare. There is a specific research sector associated with each of those resources. We provide a full welfare analysis, and we describe the equilibrium paths in a decentralized economy. We go on to study the effects of three associated economic policy tools: a tax on the polluting resource, and two research subsidies. We show that the optimal environmental policy has two main effects; it delays the extraction of the resource and with it the level of polluting emissions and it reallocates research efforts, decreasing the amount put into "grey" research to the benefit of "green" research.We also show that the environmental policy is grey-biased in the short-term, and green-biased in the long-term. Finally, we compute the optimal values for these tools.

The Impact of Direct Subsidies in Spain before and after the CAP'92 Reform

Abstract: This paper focuses on the changes in farm e±ciency as a tool for policy analysis. The methodology is applied to the introduction of direct payments (DP) and the price sup- port reduction a®ecting large samples of individual farms with joint animal and vegetal production (comparing before and after CAP'92). The case study is justi¯ed for their relevance for Mediterranean forest and grazing land preservation in Spain. Using a non parametric method (DEA) we do not specify the production function of the farms, and can explain the impact of the direct payments on environmental adaptation and e±ciency for animal orientated farms before and after the (DP) introduction in 1992 (CAP'92 reform). Even though the direct payments increased sharply after the CAP'92 reform, in general, the new direct payment system turns out to be insu±cient to o®- set the fact that less environmentally friendly farms remain much more \e±cient," i.e. pro¯table for the farmer. The paper also studies the relationship of e±ciency with other policy relevant factors such as economic size. The results show that after the CAP'92 reform, the subsidy schedule was even more correlated with farm size than before, which we ¯nd to be counterproductive.1

Regenerative, Semiclosed Systems: A Priority for Twenty-First-Century Agriculture

Abstract: This overview draws attention to several reasons to encourage the design of new agronomic systems, shifting from conventional open or leaky systems to more closed, regenerative systems: Current systems cause overconsumption of environmental resources, contribute to climate change, rely on increasingly expensive fossil fuel, and result in environmental (e.g., groundwater) contamination. Moreover, the agronomic–urban interface is growing, as are markets for ecologically friendly produce, the need for low-input farming systems in low-income regions, and disenchantment with the subsidization of conventional agriculture. There is reasonable biological and economic evidence to support advocacy for a shift to regenerative systems. Such a shift presents challenges—for example, although higher labor input enhances community well-being and rural social capital, it is costly. It also offers opportunities—for example, to adapt technologies to monitor and minimize wastage. Shifting to semiclosed systems would...

Stadiums and arenas: economic development or economic redistribution?

Abstract: This article explores the literature on the impact of professional sports teams and stadiums on their host communities. A large body of research has addressed these issues, some of it academic and much of it for hire by team and sport boosters. The broad conclusion of this literature is that stadiums and franchises are ineffective means to creating local economic development, whether that is measured as income or job growth. There may be substantial public benefits from stadiums and franchises, but those too are insufficient to warrant large-scale subsidies by themselves. In combination with consumer surpluses from attendance, however, subsidies may be efficient. (JEL R58, J30, H71, L83) I. INTRODUCTION In the past 20 yr, stadium and arena construction has occurred at an incredible pace. Cities that had one stadium for both baseball and football suddenly needed stadiums dedicated to each individual sport. Cities without professional sports franchises believed that the way to attain a franchise, either through movement of an existing team or through expansion, wasto build a state-of-the-art facility. Teams used the existence of willing suitors to pressure their home towns for bigger, better, and more modern facilities for sweetheart deals on the use of the facilities and, even to a share, sometimes 100% shares, of the revenues generated by the publicly owned facilities. All this stadium-related activity attracted the interest of academic and nonacademic public policy analysts. Millions of dollars of public spending on stadiums for professional sports franchises, while streets needed repair and schools and other vital public services were facing cuts, made subsidies for stadiums even more attractive an issue to researchers from economics, public policy, sociology, political science, and sport management. The nature of the research was and is as varied as the background and training of the individuals conducting it. I focus on the research on the public sector side of construction of stadiums and arenas. 1 I restrict attention to two general issues in the literature. First, I review the literature on the relationship between construction and operation of the facilities and economic outcomes in the host community. 2 Second, I review the research into the politics of stadium and arena subsidies. Researchers have studied the referendums on subsidies, wherein the voters get a chance to express their support for or opposition to the public subsidies, and the process by which stadium construction gets onto the public agenda. Besides the general effects on the economy, new stadium construction is also justified as necessary to attract mega-events