American Economic Review Vol. 109 No. 10 2019
Equilibrium Effects of Firm Subsidies
Abstract
Subsidy programs have two countervailing effects on firms: direct gains for eligible firms and indirect losses for those whose competitors are eligible. In 2006, India changed the eligibility criteria for small-firm subsidies, and the sales of newly eligible firms grew by roughly 35 percent. Competitors of the newly eligible firms were affected, with almost complete crowd-out within products that were less internationally traded, but little crowd-out for more-traded products. The newly eligible firms had relatively high marginal products, so relaxing the eligibility criteria for subsidies increased aggregate productivity by around 1−2 percent. Targeting different firms could have led to similar gains.
- DOI
- 10.1257/aer.20171840
- Volume
- 109
- Issue
- 10
- Pages
- 3475-3513
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref