Are Higher Education Subsidies Second Best?

An optimal taxation framework is considered in which part of the population can take advantage of investment in higher education. It is shown that social welfare can sometimes be increased by supplementing linear income taxes with a subsidy to material investment in higher education, but that social welfare can never be increased by supplementing a non‐linear income tax with such a subsidy.     

Subsidy competition and imperfect labor markets

This study presents a two‐country model of subsidy competition for manufacturing firms under labor market imperfections. Because subsidies affect the distribution of firms, subsidies influence unemployment rates and welfare in both countries. We show that when labor market frictions are high, subsidy competition is beneficial, although subsidies under subsidy competition are inefficiently high. In the coordinated equilibrium, the supranational authority provides a subsidy to firms that equal the expected total search costs, which increases the number of firms relative to laissez‐faire and improves welfare relative to laissez‐faire and subsidy competition. Finally, we find that a rise in a country's labor market frictions raises the equilibrium subsidy rate, affects unemployment rates, and lowers welfare.     

食品价格上涨对城镇家庭消费与福利影响研究——基于EASI模型

文章基于与2015年度诺贝尔经济学奖得主迪顿的接近理想需求系统 AIDS 来源相同的EASI需求系统 ,采用CHNS调查数据 ,运用 EASI需求系统实证分析了各类食品价格上涨对不同收入等级城镇家庭消费与福利的影响 ,并比较了收入补贴与价格补贴的经济效果.研究发现:(1)我国城镇居民动物性食品消费支出占食品总支出的比重最大 ,其次是粮食和蔬菜 ,城镇居民的食品消费结构为"动物性食品+粮食+蔬菜" ,这说明动物性食品价格上涨对我国城镇居民日常膳食消费的影响相对较大.(2)粮食价格对困难户和最低收入家庭的福利影响最大 ,动物性食品价格对较低收入家庭的福利影响最大.(3)对低收入家庭而言 ,当动物性食品价格上涨时 ,收入补贴政策的效果优于价格补贴政策 ;当粮食价格上涨时 ,价格补贴政策的效果优于收入补贴政策.文章最后从生产、补贴政策和分配制度的角度提出了政策建议.     

Mixed duopoly,privatization, and subsidization with excess burden of taxation

We investigate optimal tax‐subsidy policies in mixed and private oligopolies with excess burden of taxation. We compare the optimal subsidies and the resulting welfare levels among four regimes: mixed and private Cournot duopolies and Stackelberg competition with public and private leaderships. We show that, in contrast to the existing works on the privatization neutrality theorem, privatization affects resulting welfare.     

Variety‐Controlling Public Policy Under Addiction and Saturation

This paper constructs a tractable general equilibrium model for investigating the dissimilar effects of addiction and saturation on consumption and public policy. By introducing an industry‐specific intertemporal consumption externality, we provide clear analytical results that a lump‐sum subsidy for firms can increase welfare in the presence of a negative externality (saturation). A tax can accomplish the same given a positive externality (addiction). Unlike existing studies of cultural goods, these results are not based on assumptions concerning exogenous different preferences across groups, but rather on conventional monopolistic competition and consumption habit formation models in macroeconomics.     

WAGE SUBSIDY AND WELFARE IN DEVELOPING COUNTRIES

This paper seeks to answer if wage subsidy to workers displaced due to trade reform raises welfare in a developing country. We use a general equilibrium model with non‐specific factor inputs and trade liberalization as a policy variable. A combination of wage subsidy and tariff rate obtains the second‐best welfare level. The theoretical result is new, policy‐relevant and important in view of political‐economy aspects of free trade in developing and transition countries.     

Optimal food price stabilisation policy

This paper proposes a framework for designing optimal food price stabilisation policies in a self-sufficient developing country. It uses a rational expectations storage model with risk-averse consumers and incomplete markets. Government stabilises food prices by carrying public stock and by applying a state-contingent subsidy/tax to production. The policy rules are designed to maximise intertemporal welfare. The optimal policy under commitment crowds out all private stockholding activity by removing the profit opportunity from speculation. The countercyclical subsidy/tax to production helps price stabilisation by subsidising production in periods of scarcity and by taxing it in periods of glut. It contributes little to welfare gains, most of which come from stabilisation achieved through public storage.     

LOOKING AT THE “POPULATION PROBLEM” THROUGH THE PRISM OF HETEROGENEITY: WELFARE AND POLICY ANALYSES*

Upon introducing heterogeneity and dynamics into a model of the demand for children, a problem of optimal population is defined and analyzed. It is shown that from the perspective of social welfare, better‐educated individuals produce too few children while less‐educated individuals produce too many children and all individuals invest too little in the education of their children. The impact of several policy tools geared at addressing the “population problem” is investigated, in particular how child allowances and other tax‐subsidy policies can be harnessed to enhance welfare, and how and why early childhood education programs can mitigate the “population problem.”     

Biofuel Subsidies and International Trade

This paper explores optimal biofuel subsidies in a general equilibrium trade model. The focus is on the production of biofuels such as corn‐based ethanol, which diverts corn from use as food. In the small‐country case, when the tax on crude is not available as a policy option, a second‐best biofuel subsidy may or may not be positive. In the large‐country case, the twin objectives of pollution reduction and terms‐of‐trade improvement justify a combination of crude tax and biofuel subsidy for the food exporter. Finally, we show that when both nations engage in biofuel policies, the terms‐of‐trade effects encourage the Nash equilibrium subsidy to be positive (negative) for the food exporting (importing) nation.     

Foreign direct investment subsidy in a dynamic stochastic general equilibrium model with heterogeneous firms

This study analyzes the macroeconomic impacts of subsidies to attract multinational corporations when firms are determining whether to enter or how to serve foreign markets. We show that a small FDI subsidy scheme induces consumption gains and delivers short‐term welfare improvement for the FDI host country if firms differ in productivity. However, the subsidy generates a new problem and results in the wealth reallocation effect, leading to welfare deterioration for the host country in the long run. Moreover, we find that a subsidy program induces a welfare improvement for the host country if it is offered to all domestic producers instead of foreign producers only in the host country.     

ENDOGENOUS EXPORT SUBSIDIES AND WELFARE UNDER DOMESTIC COST HETEROGENEITY

We present a model of international market share rivalry where the domestic export subsidy is determined by lobbying. Greater domestic cost heterogeneity leads to a higher subsidy level and a larger domestic market share. However, the relationship between cost heterogeneity and welfare is ambiguous. Starting from a near-symmetric situation, an increase in heterogeneity reduces domestic welfare if the number of domestic firms exceeds some critical value. When starting farther from symmetry, the welfare effect is reversed. Our findings are in contrast with the results from the existing literature where lobbying is ignored.     

A Note on the Adverse Effect of Competition on Consumers

It is usually believed that higher competition, implying more active firms, benefits consumers. We show that this may not be the case in an industry with asymmetric cost firms. A rise in the number of more cost‐inefficient firms makes the consumers worse off in the presence of a welfare‐maximizing tax/subsidy policy. A rise in the number of more cost‐inefficient firms also reduces social welfare.     

Higher Education: Subsidizing Tuition versus Subsidizing Student Loans

We use a simple two‐period equilibrium framework to explore the effects of two different subsidization regimes for higher education on the formation of human capital and on the distribution of incomes. Individuals finance their investments in higher education through income‐contingent education loans as well as subsidies from the government. The subsidy is tax‐financed. We compare an egalitarian subsidy scheme, which reduces by a uniform amount the tuition charged to students, with a student loan subsidy which is proportional to the student's debt service obligation. We show that both types of subsidies reduce the economy‐wide underinvestment in higher education and lead to a more equal income distribution. Furthermore, according to some social welfare criterion, the student loan subsidy regime dominates the tuition subsidy regime if the subsidy level is predetermined, while the converse is true if the subsidy level constitutes a choice variable of the government.     

R&D Subsidies versus R&D Cooperation in a Duopoly with Spillovers and Pollution

We introduce pollution, as a by‐product of production, into a non‐tournament model of R&D with spillovers. Technology policy takes the form of either R&D subsidisation or pre‐competitive R&D cooperation. We show that, when the emissions tax is exogenous, the optimal R&D subsidy can be negative, i.e. there should be a tax on R&D, depending on the extent of the appropriability problem and the degree of environmental damage. In a wide class of cases, depending on the parameter values, welfare in the case of R&D cooperation, is lower than welfare in the case of R&D subsidisation.     

Regulated Competition under Increasing Returns to Scale

In the classical models of regulation economics, a mechanism that secures truthful revelation involves paying a subsidy to the firm. In this paper, we investigate whether it is possible to create a regulatory mechanism under a no‐subsidy constraint that induces the firm to report its private information truthfully. We consider a number of firms operating under regulated competition and with increasing returns to scale technology. It is shown that in equilibrium each firm chooses to report truthfully without receiving any subsidy. The use of competition may give rise to an efficiency loss due to the increasing returns to scale. However, we show that our mechanism may still be better, from a social welfare point of view, than the case of monopoly regulation that involves no subsidy.     

ENTRY REGULATIONS,WELFARE, AND DETERMINANTS OF MARKET STRUCTURE

Welfare effects of entry regulations are theoretically ambiguous in differentiated product markets. We use a dynamic oligopoly model of entry and exit with store‐type differentiation and static price setting to evaluate how entry regulations affect long‐run profitability, market structure, and welfare. Based on unique data for all retail food stores in Sweden, we estimate demand, recover variable profits, and estimate entry costs and fixed costs by store type. Counterfactual policy experiments show that welfare increases when competition is enhanced by lower entry costs. Protecting small stores by imposing licensing fees on large stores is not welfare enhancing.     

SUBSIDIES AS OPTIMAL FISCAL STIMULI

Theoretical macroeconomic models typically take fiscal policy to mean tax‐and‐spend by a ‘benevolent government’ that exploits potential aggregate demand externalities inherent in the imperfectly competitive nature of goods markets. Whilst shown to raise aggregate output and employment, these policies crowd‐out private consumption and typically reduce welfare. On account of their widespread use to stimulate economic activity, we consider the use of ‘tax‐and‐subsidize’ instead of ‘tax‐and‐spend’ policies. Within a static general equilibrium macro‐model with imperfectly competitive goods markets, we examine the effects of wage and output subsidies and show that, for a small open economy, positive tax and subsidy rates exist which maximize welfare, rendering no intervention suboptimal. We also show that, within a two‐country setting, a Nash non‐cooperative symmetric equilibrium with positive tax and subsidy rates exists, and that cooperation between governments in setting these rates is more expansionary and leads to an improvement upon the non‐cooperative solution.     

An integrated tax-subsidy policy for carbon emission reduction

A carbon tax is often cited by economists as an effective instrument to mitigate greenhouse gas emissions, but there is little political interest in the United States. In light of this political unpopularity, we develop and examine a net-revenue constrained carbon tax and subsidy program. The optimal revenue constrained tax and subsidy schedule based on our utility maximization model taxes energy sources with high emissions to energy price ratio, and subsidizes sources with low emissions to energy price ratios. This approach may be more palatable than a traditional carbon tax because it can change the relative price of low and high emissions energy sources while providing a mechanism to limit net tax increases and energy price increases. We find that a constrained tax/subsidy program provides welfare gains relative to a no-tax scenario. Welfare gains are estimated to be 1% and 36% of the welfare gains from a Pigouvian tax for the motor fuels industry and electric power industry, respectively. In contrast, subsidies for low-emitting energy sources funded from general tax funds rather than from high-emission energy tax revenues lead to welfare decreases substantially below our proposed tax/subsidy policy approach.     

开放条件下粮食政策实施的福利经济分析

本文研究目的在于建立一个结合关税配额制度、粮食补贴政策和生态退耕政策的粮食部门均衡模型GSEM,来模拟比较不同政策调整对粮食部门社会福利影响,从而对存在明显目标冲突的粮食政策进行调整优化.研究结论显示,关税配额制度和生态退耕政策会减少粮食部门社会福利,粮食补贴政策可以提高粮食部门福利,能够弥补市场开放对生产者福利损失,其中直接补贴政策中的面积补贴方式最有效率.     

On Assisting Domestic Industries under Bertrand Competition

In a homogeneous‐good duopoly game with a home and a foreign firm, which compete on prices, it has been shown that the optimal way to assist the domestic industry is by a production subsidy. The argument here is that the subsidy is used to keep potential competitive pressure on the foreign firm. This paper analyzes under which conditions this threat of entry of a subsidized home firm is credible. It is shown that in markets where the firms move before the government, a subsidy is not credible and dominated by a tariff in terms of welfare.