Abstract
We study how the interaction between economic openness and competitive selection affects the effectiveness of employment (and entry) subsidisation. Within a twocountry heterogeneous-firms model with endogenous labour supply, we find that optimal employment subsidies are always positive even though they can have pro- or anti-competitive effects on industry selection depending on whether the economy is open or not. We also find that selection effects resulting from international competition and fiscal externalities may imply that non-cooperative policies entail under-subsidisation of employment. Whilst always having procompetitive selection effects on the industry, entry subsidies are shown to be less effective in raising employment and welfare than employment subsidies.
Original language | English |
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Place of Publication | United Kingdom |
Publisher | Social Science Electronic Publishing, Inc. |
Number of pages | 37 |
Publication status | Published - 21 Nov 2015 |
Publication series
Name | Discussion Paper in Economics |
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Publisher | Social Science Electronic Publishing, Inc. |
No. | 15-9 |
ISSN (Electronic) | 0143-4543 |
Keywords
- optimal policy
- employment subsidies
- competitive selection
- international trade
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Molana, Hassan
- University of Dundee School of Business - Emeritus Professor of Economics
Person: Honorary