Equilibrium Effects of Firm Subsidies

Martin Rotemberg

American Economic Review, 2019, vol. 109, issue 10, 3475-3513

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.

JEL-codes: D22 D24 H25 L25 L52 L60 O14 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/aer.20171840
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Citations: View citations in EconPapers (24)

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