The Cost of Export Subsidies: Evidence from Costa Rica

Abstract

A model is developed to estimate the effects of export subsidies on the supply of exports. With data for Costa Rica over the 1980s, it is shown that although the export subsidy scheme in operation led to an increase in exports, the direct fiscal costs of the scheme were substantial. Furthermore, the subsidy scheme led to a significant increase in imports. These results suggest that elimination of export subsidies would not have a particularly harmful effect on the trade balance, and would, in addition, increase the fiscal position and generate economic efficiency.