Responses to foreign export subsidies

Export subsidies remain a nettlesome issue in international trade relations and negotiations. Although economists typically point to the welfare losses associated with subsidies, there is a growing professional literature describing possible welfare gains from subsidies. Economists have spent less time determining the appropriate response to foreign subsidies. This study establishes a framework for making such a determination, given various policy objectives to be achieved in a subsidy response.     

Subsidies for FDI: Implications from a model with heterogeneous firms

This paper analyzes the welfare effects of subsidies to attract multinational corporations when firms are heterogeneous in their productivity levels. I show that the use of a small subsidy raises welfare in the FDI host country, with the consumption gains from attracting more multinationals exceeding the direct cost of funding the subsidy program through a tax on labor income. This welfare gain stems from a selection effect, whereby the subsidy induces only the most productive exporters to switch to servicing the host's market via FDI. I further show that for the same total subsidy bill, a subsidy to variable costs delivers a larger welfare gain than a subsidy to the fixed cost of conducting FDI, since a variable cost subsidy also raises the inefficiently low output levels stemming from each firm's markup pricing power.     

The Use and Abuse of Export Subsidies: Evidence from Colombia

(12033) Christian Helmers and Natalia Trofimenko We evaluate the impact of firm‐specific export subsidies on exports in Colombia. Using a two‐step selection model, we predict firm‐specific subsidy amounts that can be explained by the characteristics that determine firms’ eligibility for government support and its amount. Drawing on the accounts of the discretionary allocation of subsidies in developing countries, we interpret the discrepancy between the predicted and the observed subsidy amounts as a proxy for a firm's ties to government officials. Controlling for observable and unobservable firm characteristics as well as persistence in exporting, we find that although, in general, subsidies exhibit a positive impact on export volumes, this impact is diminishing in subsidy size and in the degree of a firm's connectedness.     

补贴概念与效果

补贴是一个相当复杂的议题,其复杂性不仅表现在概念上,也表现在它可能产生的效果上。补贴可能增加也可能降低其受体的利润水平;可能对国际贸易产生扭曲效果,其影响也可能仅限于国内;可能有助于政府实现其意欲达成的目标,也可能背离其初衷;可能增加或降低政府收益,也可能无影响。把补贴宽泛地界定为有可能在短期、中期或长期对其受体的利润水平产生影响的政府作为(或不作为),有助于使决策者把关注重点转向补贴效果,从而有利于其做出应否维持、增加、减少或消除特定补贴的判断。     

The Economics of State Subsidies in Early Stage Financing

We analyze the effect of state subsidies on early stage investments. In a two‐period investment model with incomplete stage financing contracts, we describe optimal and second‐best investment levels. Optimality depends on external effects: given that private early stage financing generates positive external effects, the subsidies might be designed to use scarce state money most efficiently to mobilize private investment capital. However, a subsidy might also contribute to greater efficiency of the contractual relationship itself without regard to external effects. Refinancing subsidies can be optimal under both perspectives and are always optimal under last of the two approaches. The comparison of the main types of subsidies, i.e. refinancing subsidies, guarantees and direct investments, speaks against the use of guarantees. Finally, we show that our results do also hold if some investors (e.g. venture capitalists) have a superior screening capability.     

WTO背景下改革补贴政策研究

近年来,国际社会对我国政府补贴的质疑甚嚣尘上,政府补贴特别是对国有企业的补贴,在世界贸易组织(WTO)规则下面临变革。党的十九大明确提出,要清理废除妨碍统一市场和公平竞争的各种规定及做法。推进经济高质量发展对政府补贴提出了进一步规范的要求。本文通过梳理分析世界主要经济体的补贴情况,从理论和实践角度讨论补贴在国际范围内所具有的客观性和普遍性,得出补贴是政府支持产业发展,激发市场活力的重要政策工具。对我国政府补贴和对国有企业补贴的情况进行梳理研究,结合国际实践经验,探索符合WTO规则的,促进我国市场经济健康快速发展的补贴政策体系,并针对补贴中存在的问题提出深化改革的对策建议。     

美日欧WTO补贴规则改革方案及其对中国的挑战

2017年以来,美日欧三方先后六次就WTO改革发表联合声明,补贴规则改革对中国的指向性极其明显,试图以重塑WTO规则的方式对中国施压。美日欧主张的WTO补贴规则改革方案呈现出补贴主体定义外延化、禁止性补贴范围扩大化、通报规则严格化等特点。改革方案针对国有企业的所有制歧视、中央与地方通报协调难题、部分产业产能过剩、研发补贴的效率与合规冲突等对中国构成严峻挑战。面对WTO补贴制度迫切改革的难题,中国应优化补贴制度并积极参与和引领多边补贴制度改革进程。在国内补贴制度改革方面,应坚持"合理性"优先于"合规性"的基本原则,严格履行成员补贴透明度与通报义务,加快研发和农业补贴方式创新。在谈判策略方面,坚持工业补贴和农业补贴一揽子的谈判策略,恢复不可诉补贴,严格界定国有企业的正常商业行为。     

When and how should infant industries be protected?

This paper develops and analyzes a welfare maximizing model of infant industry protection. The domestic infant industry is competitive and experiences dynamic learning effects that are external to firms. The competitive foreign industry is mature and produces a good that is an imperfect substitute for the domestic good. A government planner can protect the infant industry using domestic production subsidies, tariffs, or quotas in order to maximize domestic welfare over time. As protection is not always optimal (although the domestic industry experiences a learning externality), the paper shows how the decision to protect the industry should depend on the industry's learning potential, the shape of the learning curve, and the degree of substitutability between domestic and foreign goods.Assuming some reasonable restrictions on the flexibility over time of the policy instruments, the paper subsequently compares the effectiveness of the different instruments. Given such restrictions, the paper shows that quotas induce higher welfare levels than tariffs. In some cases, the dominance of the quota is so pronounced that it compensates for any amount of government revenue loss related to the administration of the quota (including the case of a voluntary export restraint, where no revenue is collected). In similar cases, the quota may even be preferred to a domestic production subsidy.     

Influence of Client-Based Subsidies on the Market for Child Care

Federal support for child care subsidies targeted to poor households has grown dramatically in recent years. The analysis presented here examines the impact of such subsidies on child care fees charged to all clients using Missouri data on provider fees and subsidy payments. It is found that patterns for fees and subsidies across providers imply that child care markets are largely competitive. Growth in subsidies observed over the period 1991–1993 increased fees and, by inference, improved quality for subsidized clients. Subsidies also induced an increase in fees for clients not covered by subsidies, an increase most likely due to the cost of expanding the child care market.     

Infant Firm Subsidization in Industries with Dynamic Structure

This paper analyzes time-consistent subsidies in industries with strong learning effects and frequent entry and exit. Structural dynamics create opportunities for strategic behavior: by influencing government policies, infant firms can reduce their tax burden and weaken future competitors. Two balanced-budget subsidy regimes are considered: (1) intra-industry redistribution; and (2) outside funding. We show that the choice of funding method does not affect equilibrium welfare. In both cases, the regulator is able to attain the constrained optimum. This result does not depend on the functional form of payoffs and holds in both price and quantity games. In linear-quadratic examples, we compute the equilibrium strategies. We show that (1) government intervention amplifies transitional price and output fluctuations and (2) the steady-state subsidy rate and infant production are decreasing in the speed of learning.      

Liberalising Trade in the Agriculture Sector of a Small Island State: The Case of Fiji

This paper uses Fiji as a case study to investigate the impacts of three trade liberalisation policies – removal of sugar price subsidies, unilateral trade liberalisation and multilateral trade liberalisation, implied by the successful completion of the Doha Round. Removal of the sugar price subsidies has an adverse effect on real output, real national welfare and employment, but promotes growth of non‐agricultural exports in the long run. Unilateral trade liberalisation, in the form of tariff cuts in the agricultural sector, increases real output, real national welfare and non‐agricultural exports in the medium term. However, this growth is not sustained in the long term. The best outcome for Fiji is multilateral trade liberalisation which increases real output, real national welfare, non‐agricultural exports and employment. It is argued that reform of trade policies in less developed countries could come at a cost, therefore highlighting the need for compensating mechanisms to deal with the adverse impacts. Other measures to assist farmers to expand output in response to a rise in prices could include measures to reduce transport, storage and packaging costs, as well as institutional measures to enhance the functioning of input and factor markets.     

NOTE ON THE WELFARE EFFECT OF SECOND‐BEST POLICIES IN A NETWORK INDUSTRY: A MONOPOLY CASE

We show that the welfare effect of second‐best policies such as a subsidy/tax and quality regulation in the case of a monopoly in a network industry depends on the strength of network effects. That is, focusing on the case in which the network effect is smaller (larger) than the marginal cost of production for the small (large) network effect, it is demonstrated that in the case of a small (large) network effect, an output and a quality‐improving subsidy (tax) policy are socially optimal, and a government should commit to a minimum (maximum) quality standard.     

WTO subsidy rules and tariff liberalization: evidence from accession of China

Countries increasingly rely on subsidies to assist their producers leading to concerns about their potential misuse. The WTO regulates its members’ subsidies by defining subsidies that are permissible, as well as by providing means to retaliate against subsidies of partner countries if these subsidies hurt one's interest. However, these subsidy rules might have an unintended effect. As both subsidies and tariffs are substitute instruments of protection, tighter subsidy rules might lead to a decrease in the pace of tariff liberalization. In this paper, we present first empirical evidence in support of this prediction. Using China's accession to the WTO in 2001 as a case study, we show that China's accession to the WTO was associated with a relative increase in its tariffs for products that faced a higher threat of retaliation against subsidies. More importantly, we also show that increases in tariff were larger in products with higher potential costs imposed by retaliation. Finally, we include several robustness tests as well as conduct two counterfactual exercises to verify that the results we obtain are indeed due to perceived threat of retaliation against subsidies.     

State tax competition for foreign direct investment: a winnable war?

When a multinational firm invests in a country, potential host states compete for the firm by offering firm-specific tax reductions. Critics blast such incentives for transferring rents to the firm without affecting the investment decision. In fact, these incentives are tied to the firm's use of domestic inputs and therefore affect output decisions. With positive interstate spillovers, a federal subsidy is necessary to reach the national optimum without tax competition. Competition reduces state taxes and the need for federal subsidies. Also, under competition, the firm locates efficiently. Therefore, tax competition does not always reduce national welfare.     

政府研发补贴、融资约束与企业创新绩效——基于所有权性质视角

政府研发补贴是克服研发市场失灵，促进企业研发活动的重要手段之一。然而，目前鲜有关于考察政府研发补贴、融资约束以及所有权性质对企业创新绩效的复杂关系研究。基于2001-2018年间我国上市制造业企业数据分析，结果表明：首先，政府研发补贴和融资约束对企业创新绩效的影响取决于企业所有制性质，国有企业的创新绩效受其影响最为显著。其次，企业在接受政府研发补贴后，其融资约束的程度都会被减缓；与国有企业相比，政府研发补贴对民营企业融资约束的缓解更强。最后，对任何所有权性质的企业而言，政府研发补贴都会挤出企业的研发投资。     

Rethinking international subsidy rules

Geo-economic tensions, notably associated with the rise of China, and global collective action problems—climate change and the COVID-19pandemic—call for international cooperation to revise and develop rules to guide both the use of domestic subsidies and responses by governments to cross-border competition spillover effects. Current WTO rules dividing all subsidies into prohibited or actionable categories are no longer fit for purpose. Piecemeal efforts in preferential trade agreements and bi- or trilateral configurations offer a basis on which to build but are too narrow in scope. Addressing spillover effects of subsidies could start with G20 countries launching a work programme to mobilise an epistemic community concerned with subsidy policies, tasked with building a more solid evidence base on the magnitude, purpose and effects of subsidy policies. The need for such cooperation has become even more pressing by the COVID-19 pandemic and associated increase in the use of subsidy programmes in major economies.     

Distributive Policies and Economic Growth: An Optimal Taxation Approach

In an infinite‐horizon endogenous growth model a capital income cum investment subsidy tax is considered to investigate if distribution of income towards the non‐accumulated factor of production (labour) retards growth and if capital income taxes are bad instruments to finance investment subsidies. The paper identifies conditions under which the tax scheme is better for growth than other distorting tax schemes. In the model a pro‐labour government acts growth maximizing and distributing income towards labour raises growth. A pro‐capital government's preferred policy is not growth maximizing under the tax scheme, but may generate higher growth than its optimal policy under other tax schemes.     

Learning by doing, export subsidies, and industry growth: Japanese steel in the 1950s and 1960s

The paper examines the Japanese steel industry to evaluate the role of export subsidy policies. Export subsidies can be instrumental in increasing an industry's cost competitiveness in the presence of learning by doing, a characteristic of production in the steel industry. Using a dynamic estimation model, this paper identifies a significant learning rate of above 20% with little intra-industry knowledge spillover. Simulations made with the model indicate that the subsidy policy had an insignificant impact on industry growth. The paper finds that the export subsidy had a small effect in stimulating industry growth, because the estimated steel supply function was relatively inelastic.     

Galloping,creeping, or receding internationalization

Using a simple two-period linear durability choice trade model, we examine strategic trade policy in terms of taxes or subsidies levied on duopolistic firms in sales markets. In contrast to earlier parametric durability studies we show that the optimal export policy is not necessarily a tax when product durability is endogenously determined. Our analysis indicates that with endogenous adjustment of durability either a tax, subsidy, or laissez-faire policy (zero subsidy) may be optimal. In addition, we find that any trade policy (tax or subsidy) has the unforeseen effect of changing the firms' product durability. For example, future expected subsidies tend to decrease the domestic firm's product durability while increasing the foreign firm's chosen durability.     

中国服务贸易补贴现状及绩效研究

中国服务贸易正处于高速发展阶段,也遇到了诸多问题,如长期贸易逆差和结构性失调。服务贸易补贴作为政府宏观调控的手段,已经成为全球普遍用来促进服务贸易发展、提高服务贸易竞争力的方式。但目前对服务贸易补贴的研究大部分还不够深入,国际组织对服务贸易和补贴的定义也存在分歧。本文首先对中国的服务贸易概况、服务贸易补贴政策环境与情况进行梳理,然后通过宏观和微观数据对中国服务贸易补贴的效果进行描述性评估,构建面板数据计量模型进行统计评估,最终指出中国服务贸易补贴存在体制不完善、方式较单一、效果不显著等问题,并提出需在世贸组织规则框架下,建立有效的补贴政策、完善立法并丰富补贴方式的建议。