Abstract
| Original language | English |
|---|---|
| Pages (from-to) | 1154-1177 |
| Number of pages | 24 |
| Journal | Review of International Economics |
| Volume | 26 |
| Issue number | 5 |
| Early online date | 26 Jul 2018 |
| DOIs | |
| Publication status | Published - Nov 2018 |
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Keywords
- optimal policy
- wage subsidies
- competitive selection
- international trade
Cite this
Competitive selection, trade, and employment : The strategic use of subsidies. / Molana, Hassan; Montagna, Catia (Corresponding Author).
In: Review of International Economics, Vol. 26, No. 5, 11.2018, p. 1154-1177.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Competitive selection, trade, and employment
T2 - The strategic use of subsidies
AU - Molana, Hassan
AU - Montagna, Catia
N1 - We thank Holger Görg, Philipp Schröder, Fredrik Sjöholm, participants at the Danish International Economics Workshop, seminar participants at Aberdeen, Sheffield and Loughborough, three anonymous referees and the Editor of the journal, for helpful comments and suggestions. Funding from the European Union’s Seventh Framework Programme for research, technological development and demonstration under grant agreement no 290647 is gratefully acknowledged.
PY - 2018/11
Y1 - 2018/11
N2 - Within a heterogeneous-firms model with endogenous labour supply, intra-industry competitive selection is shown to affect the impact of wage (and entry) subsidies. Optimal uniform wage subsidies are always positive even though, by reducing industry selectivity, they lower average productivity. Due to international selection and fiscal externalities, non-cooperative policies entail under-subsidisation of wages. Targeted (domestic-only or export) wage subsidies are dominated from a welfare point of view by a uniform subsidy. Whilst always having an opposite effect on average productivity, an optimal entry subsidy is shown to be less effective than an optimal uniform wage subsidy in raising employment and welfare.
AB - Within a heterogeneous-firms model with endogenous labour supply, intra-industry competitive selection is shown to affect the impact of wage (and entry) subsidies. Optimal uniform wage subsidies are always positive even though, by reducing industry selectivity, they lower average productivity. Due to international selection and fiscal externalities, non-cooperative policies entail under-subsidisation of wages. Targeted (domestic-only or export) wage subsidies are dominated from a welfare point of view by a uniform subsidy. Whilst always having an opposite effect on average productivity, an optimal entry subsidy is shown to be less effective than an optimal uniform wage subsidy in raising employment and welfare.
KW - optimal policy
KW - wage subsidies
KW - competitive selection
KW - international trade
U2 - 10.1111/roie.12354
DO - 10.1111/roie.12354
M3 - Article
VL - 26
SP - 1154
EP - 1177
JO - Review of International Economics
JF - Review of International Economics
SN - 1467-9396
IS - 5
ER -