Subsidy Design Research Articles

How long and how much? Learning about the design of wage subsidies from policy changes and discontinuities

Employment and wage subsidies are used to combat long-term unemployment, yet there is little research to guide the design of such programs. Discontinuities and changes in the design and implementation of wage subsidies under the Swedish New Start Jobs-policy allow us to study effects of both subsidy rate and subsidy duration. We find that wage subsidies have substantial effect on job-finding rates for those eligible. The effect is stronger for larger subsidies and more than doubles as the length of the subsidy doubles. Although employment drops as subsidies expire, the probability of being employed remains higher for workers finding subsidized employment also after the expiry of the employment subsidies.

A Stakeholder-Based Approach to Cross-Policy Performance Evaluation of Promotion Employment Programs

In recent years, the government has endorsed wage subsidies as a policy instrument to deal with this country’s diverse unemployment since financial crisis of 2007. The major purpose of this paper is to compare implementation process and effectiveness of four selected promotion employment policies from the stakeholder approach. The research considers Diverse Employment Project, Instant Employment Plan, Workplace Experience for Youth, and Promotion of Employment through Improving Quality Human Project as cross-policy research targets. Those programs are characterized as types of wage subsidies policy to raise employment levels. This paper conducts a telephone survey to obtain insights into wage subsidy design and implementation issues. The research argues that although wage subsidies may be successful at creating jobs, they should not be seen as the primary or dominant policy instrument for dealing with the broader unemployment problem. The research also finds that grant standards are inconsistent with the each other; it shows trade-off and competition among the programs. To enhance the effectiveness of wage subsidies, they should preferably be linked to structured workplace training, be targeted to industries where employment will be responsive to changes in labor costs, and be focused on the unemployment. The research suggests that the relevant authorities review and improve existing administrative operations of those programs, the contents of streamlining processes and operations to reduce administrative procedure pressure.

Corporate deductibility provisions and managerial incentives

Using an agency model of firm behavior, the paper analyzes whether the cost of investment should be tax exempt. The findings suggest that, when managers engage in wasteful capital expenditures, welfare may decline if the cost of investment is tax deductible, as commonly advocated. The extent to which the return on investment should be taxed depends on how the internal provision of incentive pay and external monitoring by banks interact in constraining the manager and whether retained earnings or new share issues finance investments at the margin. The results are informative for the design of investment subsidies which might be integrated in corporate tax systems such as an Allowance for Corporate Equity or a cash-flow tax.

A Nash Approach to Planning Merchant Transmission for Renewable Resource Integration

Major transmission projects are needed to integrate and to deliver renewable energy (RE) resources. Cost recovery is a serious impediment to transmission investment. A negotiation methodology is developed in this study to guide transmission investment for RE integration. Built on Nash bargaining theory, the methodology models a negotiation between an RE generation company and a transmission company for the cost sharing and recovery of a new transmission line permitting delivery of RE to the grid. Findings from a six-bus test case demonstrate the Pareto efficiency of the approach as well as its fairness, in that it is consistent with one commonly used definition of fairness in cooperative games, the Nash cooperative solution. Hence, the approach could potentially be used as a guideline for RE investors. The study also discusses the possibility of using RE subsidies to steer the negotiated solution towards a system-optimal transmission plan that maximizes total net benefits for all market participants. The findings suggest that RE subsidies can be effectively used to achieve system optimality when RE prices are fixed through bilateral contracts but have limited ability to achieve system optimality when RE prices are determined through locational marginal pricing. This limitation needs to be recognized in the design of RE subsidies.

Corporate Deductibility Provisions and Managerial Incentives

Using an agency model of firm behavior, the paper analyzes whether the cost of investment should be tax exempt. The findings suggest that, when managers engage in wasteful capital expenditures, welfare may decline if the cost of investment is tax deductible, as commonly advocated. The extent to which the return on investment should be taxed depends on how the internal provision of incentive pay and external monitoring by banks interact in constraining the manager and whether retained earnings or new share issues finance investments at the margin. The results are informative for the design of investment subsidies which might be integrated in corporate tax systems such as an Allowance for Corporate Equity or a cash-flow tax.

Who benefits from early childcare subsidy design in Ireland?

Follow this and additional works at:http://arrow.dit.ie/cserartPart of theEducation Policy Commons,Inequality and Stratification Commons,OtherEducation Commons,Other Political Science Commons,Policy Design, Analysis, and EvaluationCommons,Politics and Social Change Commons,Public Administration Commons,Public PolicyCommons,Social Control, Law, Crime, and Deviance Commons,Social Policy Commons, and theSocial Welfare Commons

Follow the Sun! How Investments in Solar Power Plants in Sicily can Generate High Returns of Investments and Help to Prevent Global Warming

Germany could have reached obligations set by the Kyoto protocol earlier if German solar investments had been relocated to Sicily. Under the protocol, additional benefits of emission savings and energy production should rise to 72%. However in 2008, German solar power plants only accounted for 20% of the financial benefits through support mechanisms such as EEG for renewable energies, while the share of green energy produced was no more than 4.8%. Although from an economic point of view the system seems absurd; it is adopted by many other countries. This paper will firstly underline the importance of renewable energies being financially supported and why policy makers can justify subsidies for selected technologies through social costs affected by carbon exhaust. The second point is that place does in fact matter and physics sets the limit: the chosen approach for expected final yield shrinks the additional benefits of the theoretical relocated south solar investments to +37%. In closing, the conclusions provide political recommendations for the design of further subsidies of solar energies in Europe.

Subsidy design: wealth versus benefits

A government would like to subsidize an indivisible good. Consumers’ valuations of the good vary according to their wealth and benefits from the good. A subsidy scheme may be based on consumers’ wealth or benefit information. We translate a wealth-based policy to a benefit-based policy, and vice versa, and give a necessary and sufficient condition for the pair of policies to implement the same assignment: consumers choose to purchase the good under the wealth-based policy if and only if they choose to do so under the translated benefit-based policy. General taxation allows equivalent policies to require the same budget.

Public Subsidies to Business: An International Comparison

The paper compares the design and outcome of public subsidies to business across a number of industrialized countries. The comparison of the amount of subsidies shows that the share of GDP devoted to total public support is markedly lower in the USA than in Europe but the share of GDP devoted to support that improves economic performance is comparable. Implementing public support follows two models. The first model (Anglo-Saxon) model is primarily “soft” in nature and decentralized. The second model is more interventionist and centralized. The former model seems to perform better especially in term of science and technology. However, the impact of public support policies remains seriously under-researched and more research is crucially needed to draw firm conclusions.

ENVIRONMENTAL INNOVATION, WAR OF ATTRITION AND INVESTMENT GRANTS

The paper analyses the timing of spontaneous environmental innovation when second-mover advantages, arising from the expectation of declining investment costs, increase the option value of waiting created by investment irreversibility and uncertainty about private payoffs. We then focus on the design of public subsidies aimed at bridging the gap between the spontaneous time of technological change and the socially desirable one. Under network externalities and incomplete information about firms' switching costs, auctioning investment grants appears to be a cost-effective way of accelerating pollution abatement, in that it allows targeting grants instead of subsidizing the entire industry indiscriminately.

Resilience and vulnerability in US farm policy: parsing the payment limitation debate

Since the New Deal era, the commodity title has been the major farm support program in US farm bills. Commodity programs have encouraged farmers to pursue specialized, monocultural, and input intensive production strategies that are increasingly viewed as unsustainable. Yet commodity programs remain politically resilient. As revealed in the farm payment limitation debate in the 2007 farm bill reauthorization process, political support for commodity programs is maintained through policy elasticity adaptations that combine new with old policy rationales. The recent extension of farm program support to producers of commodities that have not received benefits in the past poses a potential threat to existing commodity programs, as this legislation has institutionalized competition within production agriculture over the allocation and design of subsidies. This paper argues for renewed attention to the policy support mechanisms that undergird the conventional agrifood system in order to better understand alternative agrifood system possibilities and constraints.

Income versus Non-Income Barriers to Allopathic Health Care: Limits to Subsidies

This paper studies non-income barriers to allopathic health care and considers possible scenarios for subsidy allocation to alleviate the consequent effects on access to public health care. A simple theoretical model is used to derive the effect of non-income barriers to health care and use data from Tanzania to carry out empirical verifications.
 The results show that access to health care depends on both household income and non-income barriers. Knowledge about the benefits of allopathic health care is crucial in the decision to seek medical care. Information gaps on the benefits of health care system affect choice of providers of medical care. The effect is disproportionately distributed between the least and the relatively more informed households. Also, uniform subsidies in health care tend to favour those with proper knowledge of causes of disease episodes and benefits of allopathic health care. Thus, design of subsidies could reflect the effect of information gaps in order to reduce price sensitivity in charged public health care. However, it might be tedious to compute levels of subsidies by households, but regional indices of information gaps could help to design an effective subsidy scheme in public health care.

Biodiversity policies in commercial boreal forests: Optimal design of subsidy and tax combinations

This paper examines the first-best instruments for biodiversity maintenance in commercial boreal forests when landowners behave either in Faustmannian or Hartmanian way. Using an extended Hartman model, we show that biodiversity conservation requires both prolonged rotation age and leaving retention trees. While the former promotes some old growth species, the latter create new structural elements of decaying and dead wood, which can sustain a variety of saprolyxic species. A fully synchronized combination of retention tree subsidy and tax instrument is needed both to lengthen the privately optimal rotation period and to provide an incentive to leave retention trees. Using Finnish data we illustrate empirically the sizes of instruments. When combined with a harvest tax, the retention tree subsidy is 1000 and 750 € in the Faustmann and in the Hartman model, respectively. When used with a timber subsidy or a site value tax, the retention tree subsidy is 1700 €/ha in both models. The harvest tax rate varies over the range 40–65% in the Faustmann model and 20–40% in the Hartman model, while timber subsidy is between 0.5–1.0% and site value tax is about 1.75%.

Introduction to ‘Housing’ Themed Issue

Housing offers shelter, possible asset growth and a tax base for local services. A housing symposium would therefore seem consistent with the interests of this journal. Housing is central to all of our lives, playing an important role in growing living standards, quality of life and the distribution of resources. Careful comparative housing research offers considerable insights. From a policy perspective housing is an interesting sector because it is where many disputes about the relative merits of markets and non-market interventions are rehearsed. as a field of study housing permits a wide variety of approaches and methodologies, adding a depth and richness to our understanding. This paper considers the economics and governance aspects of housing and identifies key contemporary themes: individual household housing choice behaviour; housing's role in the distribution of income and wealth; the economic governance and performance of social housing; and effective subsidy design to overcome market failures. All of these themes are further addressed in the following papers.

Industrial forest plantation subsidies: Impacts and implications

This paper examines industrial plantation subsidies' issues and begins to assess the impacts and implications of these subsidies on the global forest. After reviewing the current status of industrial plantations and the types and levels of plantation subsidies in use, key economic and social issues are assessed with the intent of improving the design and targeting of subsidies. We also recommend steps for governments, industry and conservation organizations to better understand and agree on subsidy regimes that support the conservation of the world's forests and forestry's contribution to social development.

Environmental Innovation, War of Attrition and Investment Grants

The paper analyses the timing of spontaneous environmental innovation when second-mover advantages, arising from the expectation of declining investment costs, increase the option value of waiting created by investment irreversibility and uncertainty about private payoffs. We then focus on the design of public subsidies aimed at bridging the gap between the spontaneous time of technological change and the socially desirable one. Under network externalities and incomplete information about firms' switching costs, auctioning investment grants appears to be a cost-effective way of accelerating pollution abatement, in that it allows targeting grants instead of subsidizing the entire industry indiscriminately.

The Economics of State Subsidies in Early Stage Venture Capital Investments

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 how we include external effects. The subsidies might be designed to maximize early stage investments, to use state money most efficiently to mobilize private investment capital, or to contribute to greater efficiency without regard to external effects. Refinancing subsidies can be optimal under all three perspectives and are always optimal under the first and last of the mentioned approaches. A comparison of different types of subsidies gives a further insight into the optimal design of subsidies.

The Effectiveness of Employment Vouchers: A Simple Approach

Abstract This paper explores the optimal design of subsidies for hiring unemployed workers (`employment vouchers' for short) in the context of a simple dynamic model of the labour market. Focusing on the short-term and long-term effects of the vouchers on employment and unemployment, the analysis shows how the optimal policy depends on the rates of hiring and firing, and on the problems of displacement and deadweight. It also examines the roles of the government budget constraint and of the level of unemployment benefits in optimal policy design. We calibrate the model and evaluate the effectiveness of employment vouchers in reducing unemployment for a wide range of feasible parameters.

In Defence of Greater Agnosticism: A Response to Galster's 'Comparing Demand-side and Supply-side Housing Policies'

ABSTRACT This paper provides a response to Galster's claim that demand-side subsidies are generally superior to supply-side subsidies. It argues that Galster's conclusion is based on a US view of how different housing systems work, that it fails to consider empirical outcomes, that it abstracts from the structure and delivery of subsidies and, despite recognising the importance of this, that it ignores the particular contexts within which markets operate. It also queries Galster's choice of goals against which policy effectiveness is assessed. Galster ignores the direct impact of subsidy design on recipient households; he ignores the effect of delivery mechanisms on social segregation and socio-tenurial polarisation; he ignores a range of macro-economic concerns. The paper presents a case for greater agnosticism in the light of imperfect information.

'Post-neoclassical endogenous growth theory': what are its policy implications?

Ideas from new growth economics are considered in the context of British economic policy. A distinction is drawn between broad capital and endogenous innovation growth models and the latter are seen as more helpful. Solow's insight that in the long run growth is independent of routine investment is regarded as still valid but the neoclassical assumption of convergence in technology is not. A key goal of policy should be to target the rate of total factor productivity growth and thus to address market failures inhibiting technology transfer. Policy initiatives should include institutional reforms as well as the appropriate design of taxes and subsidies. Copyright 1996 by Oxford University Press.