Selection, Trade and Employment: The strategic use of subsidies

Hassan Molana, Catia Montagna (Lead / Corresponding author)

    Research output: Working paper/PreprintDiscussion paper


    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 languageEnglish
    Place of PublicationUnited Kingdom
    PublisherSocial Science Electronic Publishing, Inc.
    Number of pages37
    Publication statusPublished - 21 Nov 2015

    Publication series

    NameDiscussion Paper in Economics
    PublisherSocial Science Electronic Publishing, Inc.
    ISSN (Electronic)0143-4543


    • optimal policy
    • employment subsidies
    • competitive selection
    • international trade


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