INTERNATIONAL COMPETITION AND U.S. R&D SUBSIDIES: A QUANTITATIVE WELFARE ANALYSIS*

In the early 1970s U.S. firms were the uncontested world leaders in R&D investment in most manufacturing sectors. Later, led by Japan and Europe, foreign firms began to challenge American R&D leadership in many sectors of the economy. This period of increasing technological competition is contemporaneous with a substantial increase in U.S. R&D subsidies. What is the effect of the observed increase in international competition on U.S. welfare? How does foreign competition affect the optimal R&D subsidy in the United States, and, consequently, how far is this from the subsidy observed in the data? This article addresses these questions in a two‐country quality ladder growth model.     

Urban unemployment and optimal trade policy in a cash-in-advance economy

This paper examines the welfare effects of commercial and tax/subsidy policies on a developing economy with sectoral unemployment and differential cash-in-advance constraints. The optimal tariff can be negative when the cash-in-advance requirement for buying the importable good is larger than that for the exportable good. In addition, when capital is sectorally mobile, production taxes are superior to production subsidies to the importable sector. Nevertheless, to reach the first-best optimum, a uniform wage subsidy to both sectors is required.     

THE COST OF THE U.S. SUGAR PROGRAM REVISITED

The article analyzes the welfare cost of the U.S. sugar program using a multimarket model of U.S. sweetener markets. The latter includes raw crops, sugar extraction and refining, and sweetener users (food-processing industries and final consumers). The authors address the industrial organization of food industries using sweeteners and treat the United States as a large importer. With the removal of the program, this article estimates (all figures in 1999 dollars) that in 1998 cane growers, sugar beet growers, and processors would have lost $307, $650, and $89 million, respectively; sweetener users would have gained $1.9 billion. World prices would have increased by 13.2%. The deadweight loss of the program is estimated at $532 million.     

Market-based systems for reducing chemical use in agriculture in the United States

This study uses a computable general equilibrium (CGE) model of the U.S. economy to estimate the economic effects of agricultural fertilizer and pesticide input reductions on individual farm sectors, and on the economy as a whole. The costs of reducing agricultural chemicals using a market-based approach and a command-and-control approach are compared. The real cost to society of restrictng fertilizer and pesticide use by 20-percent across all uses is estimated to be $2.3 billion. A market-based approach that would provide incentives to reduce chemical use in the most cost efficient manner would be about 10-percent less costly.We would like to thank Greg Alward, Norman Bakka, Eldon Ball, Ken Hanson, Valerie Personick, and Mark Planning for supplying data.     

The effects on agriculture in the United States of an oil import fee

This paper focuses on the effect that a crude oil import fee would have on the various producing sectors, consuming sectors and household categories in the United States where the interrelationships between these entities is explicitly considered. Special attention is given to the agricultural sectors of the economy. Thus, in the context of a general equilibrium model, the effect of a $5.00 per barrel import fee on the producing sectors in general and the three agricultural sectors plus forestry in particular, on the consuming sectors, on households and on the government is calculated. Over the period 1984–90 with such an import fee (relative to the absence of a crude–oil import fee), the model results suggest that there will be a reduction in output by all producing sectors (except the crude-oil industry) by about $13,924 billion, there will be a fall in the consumption of goods and services by about $318 million and there will be a decline in aggregate social welfare (measured as utility) by about $208 mill ion. The government will realize an increase in revenue of about $3,622 billion. The agricultural sectors in the aggregate can expect to see a fall in output of $769 million with an attendant increase in the price of its goods as a consequence of the oil import fee.     

Internal trade,productivity and interconnected industries: A quantitative analysis

Does trade within a country affect welfare and productivity? What are the magnitude and consequences of costs to such trade? To answer these questions, we exploit unique Canadian data to measure internal trade costs in a variety of ways—they are large and vary across sectors and provinces. To quantify their consequences for welfare and productivity, we use a recent multi‐sector trade model featuring rich input–output relationships. We find interprovincial trade is an important contributor to Canada's GDP and welfare, though there are significant costs to such trade. Reducing interprovincial trade costs by 10% yields aggregate gains of 0.9%; eliminating our preferred estimates of costs, gains average between 3% and 7%—equivalent to real GDP gains between $50 billion and $130 billion. Finally, as policy reforms are often sector specific, we liberalize sectors one at a time and find gains are largest in highly interconnected industries.     

Competing for Foreign Direct Investment

The paper analyzes 'subsidy games' between countries in order to attract foreign direct investment (FDI) from a third country. The winner of this game results from the interaction of two factors, relative country size and employment gains from FDI: a large (or 'central') country is more likely to attract FDI, and so is a country with high unemployment. The subsidy equilibrium is compared with two alternative solutions: zero subsidies and first-best subsidies. It is shown that total welfare may be greater under subsidy competition than under zero subsidies: the gains from efficient location implied by subsidy competition may more than outweigh the losses from higher subsidies. Moreover, departing from subsidy competition to zero subsidies or to first-best subsidies (without side payments) implies a gain to one country and a loss to the other. This suggests that it may be difficult to reach a consensus to move away from the status quo of subsidy competition.     

First-best health policy in vaccine markets with health and network externalities

This paper considers an oligopolistic market for a vaccine, characterized by negative network effects, which stem from the free-riding behavior of individuals engaged in a vaccination game. Vaccine markets often suffer from three imperfections: high concentration, network effects, and a health externality (contagion). The first conclusion of the paper is that the negative network externality is important as a market distortion, as it may lead to significant welfare losses. The second and main part of the paper develops a two-part per-unit subsidy scheme that a social planner could use to target both consumers and producers of vaccines. The scope of such a subsidy scheme to induce the firms to produce the first-best output without network effects (which is the most ambitious first-best target) is investigated. In many cases, while the first-best is attainable, it requires negative prices for vaccines, which amounts to rewarding consumers to induce them to vaccinate.     

CONSERVED ENERGY SUPPLY CURVES FOR U.S. BUILDINGS

Comparison of nine conservation supply curves for electricity shows that fully implementing a series of energy efficiency measures will result in annual saving of 734 billion kWh (BkWh). This is 45 percent of 1989 U.S. building sector electricity use of 1627 BkWh and represents a $29 billion saving. When translated to units of conserved carbon dioxide (CC CO₂), this annual saving is 514 megatonnes, which is 10 percent of the total 1989 U.S. carbon dioxide (CO₂) emissions from all sources. Implementing additional fuel efficiency measures would result in further potential saving of 5·2 quads of fuel (natural gas and oil) per year, or another 300 megatonnes of CO₂, at a net savings of $20 billion. Fuel switching (replacing electric resistance heat with on-site natural gas combustion) would produce annual saving of another 74 megatonnes of CO₂ at a net saving of $6·8 billion. Thus, total CO₂ saving from these combined efficiency measures are 890 megatonnes at a net saving of $56 billion per year.     

Bioenergy Crop Production in the United States: Potential Quantities, Land Use Changes, and Economic Impacts on the Agricultural Sector

The U.S. Departments of Agriculture and Energyjointly analyzed the economic potential for,and impacts of, large-scale bioenergy cropproduction in the United States. Anagricultural sector model (POLYSYS) wasmodified to include three potential bioenergycrops (switchgrass, hybrid poplar, and willow). At farmgate prices of US $2.44/GJ, anestimated 17 million hectares of bioenergycrops, annually yielding 171 million dry Mg ofbiomass, could potentially be produced at aprofit greater than existing agricultural usesfor the land. The estimate assumes highproductivity management practices are permittedon Conservation Reserve Program lands. Traditional crops prices are estimated toincrease 9 to 14 percent above baseline pricesand farm income increases annually by US $6.0billion above baseline.At farmgate prices of US $1.83/GJ, anestimated 7.9 million hectares of bioenergycrops, annually yielding 55 million dry Mg ofbiomass, could potentially be produced at aprofit greater than existing agricultural usesfor the land. The estimate assumes managementpractices intended to achieve highenvironmental benefits on Conservation ReserveProgram lands. Traditional crops prices areestimated to increase 4 to 9 percent abovebaseline prices and farm income increasesannually by US $2.8 billion above baseline.     

ESTIMATED MACROECONOMIC EFFECTS OF THE U.S. STIMULUS BILL

This paper uses a multicountry macroeconometric model to estimate the macroeconomic effects of the U.S. stimulus bill passed in February 2009. The analysis has the advantage of taking into account many endogenous effects. Real U.S. output is estimated to be $554 billion larger when summed over the 12‐year period 2009:1–2020:4 (0.29% of the total sum of output). The average number of jobs is 509 thousand larger (0.37%). There is some redistribution of output and employment away from 2012 to 2015. At the end of 2020, the federal government debt is larger by $637 billion in real terms (the debt/GDP ratio is larger by 3.19 percentage points), which may increase the risk of negative asset‐market reactions. (JEL E17)     

Measuring the effectiveness of non-price export promotion using a supply-side approach

In this paper we assess the effectiveness of the Market Promotion Program (MPP) in increasing U.S. exports and benefitting U.S. agricultural producers and food processors. Export shipments are linked to producer welfare using Kohli's (1978) profit maximization (GNP function) approach to modeling international trade. Using estimated profit functions in conjunction with a synthetic export demand function for processed agricultural products, we compute changes in farm and food processing sector profits that result from alternative own-price and advertising elasticities of export demand with and without the MPP subsidy. This approach allows us to investigate aggregate welfare effects of nonprice promotion without requiring the difficult task of estimating the export demand effects of market promotion activities for numerous commodities and importing countries. First version received: April 1999/Final version received: June 2000     

Effects of subsidies on growth and welfare in a quality-ladder model with elastic labor

This paper develops a quality-ladder growth model with elastic labor supply and distortionary taxes to analyze the effects of different subsidy instruments: subsidies to the production of final goods, subsidies to the purchase of intermediate goods, and subsidies to research and development (R&D). Moreover, the model is calibrated to the US data to compare the growth and welfare implications of these subsidies. The main results are as follows. First, we analytically show that an optimal coordination of all instruments attains the first-best outcome. Second, in the calibrated economy, we numerically find that for the use of a single instrument, R&D subsidy is less growth-enhancing and welfare-improving than the other subsidies, whereas for the use of a mix of two instruments, subsidizing the production of final goods and the purchase of intermediate goods is most effective in promoting growth but least effective in raising welfare.     

Campaign Contributions and Agricultural Subsidies

This article examines the influence of campaign contributions on agricultural subsidies. Empirical results revealed that rent-seeking works, i.e. contributions, influence agricultural subsidies in the manner they best serve contributors' economic interests. Eliminating campaign contributions would significantly decrease agricultural subsidies, hurt farm groups, benefit consumers and taxpayers, and increase social welfare by approximately $5.5 billion. Although contributions are not the only determinants of agricultural subsidies, investment returns to farm PAC contributors are quite high ($1 in contributions brings about $2,000 in policy transfers). In fact, the results are in sharp contrast to the "truthful contributions" assumption of the Grossman–Helpman model.     

2009财年美国农业部预算概况

2009财年,美国政府农业部预算为970亿美元,比2008财年增长了5．1％。营养援助和农作物保险部分的增长幅度最大,自主支配部分为210亿美元,比上年增长了1．6％;自然资源保护、研究以及农村发展预算有所减少;畜牧业、植物保护和食品安全计划预算南所增加。     

Replacing the U.S. income tax with a progressive consumption tax: A sequenced general equilibrium approach

This paper examines the welfare consequences of changing the current U.S. income tax system to a progressive consumption tax. We compute a sequence of single period equilibria in which savings decisions depend on the expected future return to capital. In the presence of existing income taxes, the U.S. economy is assumed to lie on a balanced growth path. With the change to a consumption tax, individuals save more and initially consume less. As the capital stock grows, consumption eventually overtakes that of the original path, and the economy approaches the new balanced growth path with higher consumption and a greater capital stock. Both the transition and the balanced growth paths enter our welfare evaluations. We find the discounted present value of the stream of net gains is approximately $650 billion in 1973 dollars, just over 1 percent of the discounted present value of national income. Larger gains occur if further reform of capital income taxation accompanies the change. We examine the sensitivity of the results, both to the design of the consumption tax and to the values of elasticity and other parameters. The paper also contains estimates of the time required to adjust from one growth path to the other.     

Liberalizing U.S. Trade with the Eastern Bloc: What are the consequences?

This paper provides estimates of the trade and welfare consequences of removing the high discriminatory tariffs that the United States imposes against imports from the Soviet Union and its allies. These imports are now taxed at Smoot-Hawley rates. The estimates of the trade effects exceed those of previous studies, in part because the recent “Tokyo Round” of multilateral trade concessions has increased the tariff discrimination against the non-MFN (Most Favored Nation) suppliers. The study is the first to assess the welfare consequences of eliminating this discrimination. It is estimated that the overall annual gain to the United States would be about $1.8 billion and that the annual gain to the communist suppliers would be between $1.2 billion and $1.7 billion.     

Urban unemployment, informal sector and development policies

We analyze the effects of wage subsidy policies on unemployment and welfare in the model that is characterized by the existence of both open unemployment and the informal sector that producesfinal goods. Our main findings are as follows. Wage subsidies to the agricultural and informal sectors increase welfare and decrease urban unemployment. The effects of a wage subsidy to manufacturing sector on welfare and unemployment are conditional. We identify some sufficient conditions for the definite results and interpret them.     

Prices versus quantities versus bankable quantities

Quantity-based regulation with banking allows regulated firms to shift obligations across time in response to periods of unexpectedly high or low marginal costs. Despite its wide prevalence in existing and proposed emission trading programs, banking has received limited attention in past welfare analyses of policy choice under uncertainty. We address this gap with a model of banking behavior that captures two key constraints: uncertainty about the future from the firm's perspective and a limit on negative bank values (e.g. borrowing). We show conditions where banking provisions reduce price volatility and lower expected costs compared to quantity policies without banking. For plausible parameter values related to U.S. climate change policy, we find that bankable quantities produce behavior quite similar to price policies for about two decades and, during this period, improve welfare by about a $1 billion per year over fixed quantities.     

AN EXTENDED MEASURE OF GOVERNMENT PRODUCT: PRELIMINARY RESULTS FOR THE UNITED STATES, 1946–76

Expanded measures of government output include imputed values of the services of government capital, uncompensated factor services of military draftees and jurors, and net revaluations, as well as the usually included compensation of employees. The government output is allocated to consumption, capital formation and product intermediate to other sectors, on the basis of its classification in ten broad functions: defense, space research, education, health, sanitation, transportation, parks and recreation, natural resources, welfare, and general administration. Final government product in 1976, including $116 billion in defense and $125 billion in education, amounted to $450.5 billion, which was 26.5 percent of the 1976 GNP. This final government product corresponded to the BEA measure of $191.6 billion.
Total capital formation related to government is defined to include both government product which enters into capital formation in other sectors and government expenditures for its own capital accumulation. After a more rapid rate of growth in previous years, this total government capital formation in the United States in 1976 is found to exceed gross private domestic investment. A significant but only minor portion was found to be constituted by government expenditures for capital goods and change in government inventories. Investment in research and development, health and, particularly, education and training, were dominant components in capital formation related to government.