Selection, Trade and Employment: The Strategic Use of Subsidies

Research output: Working paperDiscussion paper

Abstract

We study how the interaction between economic openness and competitive
selection affects the effectiveness of employment and entry subsidisation. Within a heterogeneous-firms model with endogenous labour supply, optimal
employment subsidies are shown to have pro- or anti-competitive effects on industry selection depending on whether the economy is open or not. Selection effects resulting from international competition and fiscal externalities imply that non-cooperative policies may entail under-subsidisation of employment. Entry subsidies always have pro-competitive selection effects on the industry, but are shown to be less effective in raising employment and welfare than employment subsidies.
Original languageEnglish
Place of PublicationDundee
PublisherUniversity of Dundee
Pages1-37
Number of pages37
Volume269
Publication statusPublished - 10 Oct 2016

Publication series

Name
PublisherUniversity of Dundee
No.296
ISSN (Electronic)1473-236X

Keywords

  • optimal policy
  • employment subsidies
  • competitive selection
  • international trade

ASJC Scopus subject areas

  • Economics and Econometrics

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    Catia Montagna

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