Yours is Bigger than Mine! Could an Index like the PSE Help in Understanding the Comparative Incidence of Industrial Subsidies?

Robert Wolfe

No 2020/52, RSCAS Working Papers from European University Institute

Abstract: State support remains a leading cause of tension in international commercial relations. Governments can see trade distortions that look like they were caused by industrial subsidies, but they lack the data to illuminate that state support. In the 1980s at the height of the farm wars the Organisation for Economic Co-operation and De-velopment (OECD) developed an index that helped countries to see the overall incidence of agricultural subsi-dies, initially called the Producer Subsidy Equivalent (PSE) and the Consumer Subsidy Equivalent (CSE). Are there lessons for today in the PSE approach? In this paper I try to answer that question from the standpoint of economics: how did the PSE evolve, what is it, is the concept relevant to industrial subsidies? And of politics: how was OECD able to create the tool, and do present conditions permit something similar? The brief answer is that the PSE was a response to a shared perception of crisis, but it was pushed by finance not trade or agricul-ture ministers. It drew on well-established concepts in the agricultural economics and trade literatures. And it works best in a context where market power is sufficiently diffuse that a price gap between domestic and world prices can be calculated. Only some of those conditions can be met when applying the approach to concentrat-ed industries dominated by large firms that operate in multi-country supply chains.

Keywords: Agricultural subsidies; industrial subsidies; fossil fuel subsidies; index; aluminium; semiconductors; steel (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (1)

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