Abstract
Subsidy programs have two countervailing effects on firms: Direct gains for eligible firms and indirect losses for those whose competitors are eligible. In 2006, India changed the eligibility criteria for small-firm subsidies, and the sales of newly eligible firms grew by roughly 35 percent. Competitors of the newly eligible firms were affected, with almost complete crowd-out within products that were less internationally traded, but little crowd-out for more-traded products. The newly eligible firms had relatively high marginal products, so relaxing the eligibility criteria for subsidies increased aggregate productivity by around 1-2 percent. Targeting different firms could have led to similar gains.
Original language | English (US) |
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Pages (from-to) | 3475-3513 |
Number of pages | 39 |
Journal | American Economic Review |
Volume | 109 |
Issue number | 10 |
DOIs | |
State | Published - Oct 2019 |
ASJC Scopus subject areas
- Economics and Econometrics