Dundee Discussion Papers in Economics 296: Selection, Trade, and Employment: The Strategic Use of Subsidies

Hassan Molana, Catia Montagna

Research output: Working paper/PreprintDiscussion paper

Abstract

We study how the interaction between economic openness and competitive selection affects the effectiveness of employment and entry subsidisation. Within a heterogeneous-firms model with endogenous labour supply, optimal employment subsidies are shown to have pro- or anti-competitive effects on industry selection depending on whether the economy is open or not. Selection effects resulting from international competition and fiscal externalities imply that non-cooperative policies may entail under-subsidisation of employment. Entry subsidies always have pro-competitive selection effects on the industry, but are shown to be less effective in raising employment and welfare than employment subsidies.
Original languageEnglish
PublisherUniversity of Dundee
Publication statusPublished - Oct 2016

Publication series

NameDundee Discussion Papers in Economics
PublisherUniversity of Dundee
No.296
ISSN (Print)1473-236X

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