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The Relative Efficiency of Automatic and Discretionary Industrial Aid

John Swales ()

No 812, Working Papers from University of Strathclyde Business School, Department of Economics

Abstract: For the last two decades, the primary instruments for UK regional policy have been discretionary subsidies. Such aid is targeted at “additional†projects - projects that would not have been implemented without the subsidy - and the subsidy should be the minimum necessary for the project to proceed. Discretionary subsidies are thought to be more efficient than automatic subsidies, where many of the aided projects are non-additional and all projects receive the same subsidy rate. The present paper builds on Swales (1995) and Wren (2007a) to compare three subsidy schemes: an automatic scheme and two types of discretionary scheme, one with accurate appraisal and the other with appraisal error. These schemes are assessed on their expected welfare impacts. The particular focus is the reduction in welfare gain imposed by the interaction of appraisal error and the requirements for accountability. This is substantial and difficult to detect with conventional evaluation techniques.

Keywords: discretionary subsidies; appraisal error; accountability; cost benefit analysis (search for similar items in EconPapers)
JEL-codes: D61 R13 R38 R58 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2008-11
New Economics Papers: this item is included in nep-geo and nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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