Barriers to innovation and subsidy effectiveness

We explore the effects of subsidies by means of a model of firms' decisions about performing R&D when some government support can be expected. We estimate it with data on about 2,000 performinga nd nonperformingS panishm anufacturingfi rms. Wec omputet he subsidies required to induce R&D spending, we detect the firms that would cease to perform R&D without subsidies, and assess the change in the privately financed effort. Results suggest that subsidies stimulate R&D and some firms would stop performing in their absence, but most actual subsidies go to firms that would have performed R&D otherwise. We find no crowding out of private funds.Publicad

Rebate Subsidies, Matching Subsidies and Isolation Effects

In a series of recent experiments (Davis, Millner and Reilly, 2005, Eckel and Grossman, 2003, 2005a-c, 2006), matching subsidies generate significantly higher charity receipts than do theoretically equivalent rebate subsidies. This paper reports a laboratory experiment conducted to examine whether the higher receipts are attributable to a relative preference for matching subsidies or to an ‘isolation effect’ (McCaffery and Baron, 2003, 2006). Some potential policy implications of isolation effects on charitable contributions are also considered.experiments, charitable contributions, methodology

Is UK agriculture sustainable? Environmentally adjusted economic accounts for UK agriculture

Agricultural sectors in most advanced economies have come under severe criticism for lacking the characteristics of 'sustainability'. What is usually meant is that a combination of subsidies and modern farming methods is producing an economically and environmentally non-viable agricultural sector. Using economic valuation techniques, and adjusting for prevailing subsidies, we seek to re-estimate the contribution that the agricultural sector made to the UK economy in the year 1998. The sector is markedly smaller if adjustments are made for subsidies. But these subsidies allow the sector to be a generator of both substantial environmental benefits, and also of extensive environmental damages

Farm Subsidies at Record Levels As Congress Considers New Farm Bill

After six decades of rising subsidy levels and expansive regulatory controls, it appeared that Washington's role in agriculture would be reduced with the enactment of the 1996 Federal Agriculture Improvement and Reform Act. That act aimed to decrease subsidies over seven years and to move farming toward greater reliance on market supply and demand. Unfortunately, that promise collapsed in an orgy of supplemental spending bills that have increased federal farm subsidies to all-time highs. Total direct subsidy payments to farmers have soared to more than $20 billion per year the past three years, up from an average of$9 billion per year in the early 1990s. There is little justification for the special hold that the agricultural industry has on tax-payers' wallets. Other industries, such as the high-tech industry, are also risky and subject to large price swings but do not receive large-scale government subsidies. Moreover, farm households have higher incomes, on average, than do nonfarm U.S. households, and subsidies are skewed toward the largest and wealthiest farm businesses. Farm subsidies also subvert their own goal: farmers demand subsidies because of low market prices for their products, but subsidies themselves contribute to lower prices. As Congress works to reauthorize farm programs, it threatens to move further away from reform by institutionalizing high levels of farm welfare. Instead, Congress should push the farm sector back into the market economy by repealing federal farm subsidies

Reducing energy subsidies in China, India and Russia : dilemmas for decision makers

This article examines and compares efforts to reduce energy subsidies in China, India and Russia. Despite dissimilarities in forms of governance, these three states have followed surprisingly similar patterns in reducing energy subsidies, characterised by two steps forward, one step back. Non-democratic governments and energy importers might be expected to be more likely to halt subsidies. In fact, the degree of democracy and status as net energy exporters or importers does not seem to significantly affect these countries’ capacity to reduce subsidies, as far as can be judged from the data in this article. Politicians in all three fear that taking unpopular decisions may provoke social unrest.Publisher PDFPeer reviewe

Subsidies for Intracity and Intercity Commuting

This paper analyzes subsidies for intracity and intercity commuting in an urban economics framework with two cities and agglomeration externalities, where workers may commute within and between cities. First, commuting subsidies serve to internalize agglomeration externalities: Intracity commuting subsidies give incentives to move to the larger city and intercity commuting subsidies make residents of the periphery commute to the core. Second, if agglomeration rents are locally captured, commuting subsidies act as a welfare enhancing transfer from the core to the periphery.commuting subsidies, agglomeration externalities, intercity and intracity commuting

Homeowner subsidies

Though some programs that were created to promote homeownership in the United States, like Fannie Mae and Freddie Mac, have been harshly criticized in the wake of the housing crisis, we are likely to continue to provide some form of taxpayer-funded assistance to those who would become homeowners. Historically, assistance has taken the form of either interest rate or down-payment subsidies, but recent research suggests that down-payment subsidies are much more effective. They create successful homeowners—homeowners who keep their homes—at a lower cost.Housing subsidies ; Home ownership ; Housing policy

Hidden Subsidies

Many governments use price subsidisation (total costs less total revenues from user charges) to meet social protection objectives in lieu of, or in addition to, direct income transfers. Such subsidies may be perceived as influencing behaviour to further other socially desirable policies. For example, the price response induced by lowering the price of schooling will both lower the cost of living for the beneficiaries and also increase the investment in education more than a similar income transfer would achieve. The incidences of benefits from a general price subsidy are proportional to purchases and can be deduced from the pattern of expenditures. Some goods are inappropriate vehicles for redistribution since subsidies on them will not only accrue mainly to the rich they will actually increase inequality in welfare. It is therefore important to ensure that commodities chosen for price subsidisation are largely consumed by the lower income groups. Also, detailed data on such commodities should be made public to make the extent of subsidy easily tractable. In the case of Pakistan, the problem of lack of transparency of federal and provincial budgets is vividly demonstrated by the inability of such budgets to readily highlight the subsidy on the various economic and social services, which are essentially in the nature of ‘private’ goods, provided by such governments. This is not only a reflection of the problem of the nature of budgeting practices whereby, first, revenues and expenditures on different heads are shown separately and no account is made either of depreciation of assets or the costs of capital used to finance the acquisition of assets which yield a stream of services. Second, to the extent that the subsidies largely benefit the upper income groups, political compulsions dictate that such subsidies largely remain hidden.

Subsidies to Industry and the Environment

Governments support particular firms or sectors by granting low interest financing, reduced regulation, tax relief, price supports, monopoly rights, and a variety of other subsidies. Previous work in partial equilibrium shows that subsidies to environmentally sensitive industries increases output and pollution emissions. We examine the environmental effects of subsidies in general equilibrium. Since all resources are used, whether or not subsidies increase emissions depends on the relative emissions intensity and incentives to emit of the subsidized industry versus the emissions intensity and the incentives to emit of the industry which would otherwise use the resources. Since subsidies must move resources to a less productive use, the economy wide marginal product of emissions falls with an increase in any subsidy, tending to decrease emissions. On the other hand, subsidies tend to move resources to more emissions intensive industries. Thus, subsidies increase pollution emissions if resources are moved to an industry for which emissions intensity is high enough to overcome the reduction in emissions caused by lower overall marginal product of emissions. We show that, under general conditions, subsidies also increase the interest rate, thus causing the economy to over-accumulate capital. Steady state emissions then rise, even if emissions fall in the short run. We also derive an optimal second best environmental policy given industrial subsidies. The results indicate that, under reasonable conditions, subsidies raise the opportunity cost of environmental quality in the long run. Finally, we examine the relationship between growth and the environment with subsidies. Under more restrictive conditions, reducing some subsidies may offer a path to sustainable development by raising income and at the same time improving the environment.Subsidies, pork, price supports, output subsidies, input subsidies, pollution, emissions.

Untangling subsidies, supporting fisheries: the WTO fisheries subsidies debate and developing-country priorities

This paper examines, from the fishery perspective of a developing country, the current debate on the role of fisheries subsidies in the context of the negotiations relating to the General Agreement on Tariffs and Trade GATT) and the World Trade Organization (WTO). While providing a background on fish production and trade in developing countries, it sketches the history of the role of the State and subsidies in the fisheries of the now-developed fish economies of the world.It goes on to analyze the manner in which fishery issues and the fisheries subsidies debate have been carried out in the GATT and WTO negotiations, leading up to the Doha Ministerial Declaration, which is the basis for a more structured negotiations on subsidies. Drawing on the analysis, the paper envisions some of the development priorities that developing countries must pursue, and the nature of support they need to achieve them. Finally, it suggests what ought to be done by developing countries in the current negotiations on fisheries subsidies. (88pp.