Abstract
Within a heterogeneous-firms model with endogenous labor supply, intra-industry competitive selection is shown to affect the impact of wage (and entry) subsidies. Optimal uniform wage subsidies are always positive even though, by reducing industry selectivity, they lower average productivity. Because of international selection and fiscal externalities, noncooperative policies entail under-subsidization of wages. Targeted (domestic-only or export) wage subsidies are dominated from a welfare point of view by a uniform subsidy. While always having an opposite effect on average productivity, an optimal entry subsidy is shown to be less effective than an optimal uniform wage subsidy in raising employment and welfare.
Original language | English |
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Pages (from-to) | 1154-1177 |
Number of pages | 24 |
Journal | Review of International Economics |
Volume | 26 |
Issue number | 5 |
Early online date | 26 Jul 2018 |
DOIs | |
Publication status | Published - Nov 2018 |
ASJC Scopus subject areas
- Geography, Planning and Development
- Development
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Molana, Hassan
- University of Dundee School of Business - Emeritus Professor of Economics
Person: Honorary