Government Subsidies and Firm-Level Markups: Impact and Mechanism

Wen Yue and Jianhua Wang
Additional contact information
Wen Yue: School of Business, Jiangnan University, Wuxi 214122, China
Jianhua Wang: School of Business, Jiangnan University, Wuxi 214122, China

Sustainability, 2020, vol. 12, issue 7, 1-21

Abstract: This paper investigates the impact of government subsidies on the firm-level markups and its mechanism of action by measuring the firm-level markups based on a micro dataset of Chinese manufacturing firms from 2000 to 2007. The findings suggest that government subsidies significantly reduce the markups of Chinese firms. Moreover, there is significant heterogeneity in the negative impact of government subsidies among different types of firms. Furthermore, analysis of the impact mechanism based on the mediation effect model shows that the increase in rent-seeking cost is an important way for government subsidies to reduce the firm-level markups. Finally, based on the dynamic decomposition of the aggregate markup of the Chinese manufacturing industry, it is found that government subsidies significantly reduce the industry-level aggregate markup through within-firm and cross-firm effects. This study enriches the literature on government subsidies and markups, and provides a new perspective for understanding the micro-performance of government subsidies.

Keywords: government subsidy; firm-level markups; rent-seeking; mediating effect (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2071-1050/12/7/2726/pdf (application/pdf)
https://www.mdpi.com/2071-1050/12/7/2726/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:7:p:2726-:d:339019

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().