TY - JOUR
T1 - Equilibrium effects of firm subsidies
AU - Rotemberg, Martin
N1 - Funding Information:
*Economics Department, New York University, 19 West 4th Street, New York, NY 10012 (email: mrotemberg@ nyu.edu). Penny Goldberg was the coeditor for this article. I am especially grateful to my advisors Shawn Cole, Rick Hornbeck, Michael Kremer, and Rohini Pande for their advice and encouragement, and to the editor and referees for their detailed comments. This project greatly benefited from helpful discussions with Natalie Bau, Dan Bjorkegren, Pallavi Chavan, Abhiman Das, Rafael Di Tella, Mike Egesdal, Joan Farre-Mensa, James Feigenbaum, Siddarth George, Ben Hebert, Bill Kerr, Pete Klenow, Asim Khwaja, Sara Lowes, Brian McCaig, Marc Melitz, Virgiliu Midrigan, Eduardo Montero, Nathan Nunn, Steve O’Connell, Mikkel Plagborg-Mller, Ariel Pakes, N. R. Prabhala, Raghuram Rajan, Tristan Reed, Julio Rotemberg, Alex Roth, Frank Schilbach, Alex Segura, Andrei Shleifer, Bryce Millett Steinberg, Andrew Weiss, T. Kirk White, and Jack Willis, as well as various seminar participants. Hunt Alcott, John Baldisserotto, D. R. Dagar, and Richard Lesage generously answered my questions about the data. I am grateful to the National Science Foundation for a generous graduate research fellowship, as well as funding from a Pellegrini grant. All errors are my own.
Publisher Copyright:
© 2019 American Economic Association. All rights reserved.
PY - 2019/10
Y1 - 2019/10
N2 - 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.
AB - 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.
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U2 - 10.1257/aer.20171840
DO - 10.1257/aer.20171840
M3 - Article
AN - SCOPUS:85072802484
VL - 109
SP - 3475
EP - 3513
JO - American Economic Review
JF - American Economic Review
SN - 0002-8282
IS - 10
ER -