Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/125648
Authors: 
Molana, Hassan
Montagna, Catia
Year of Publication: 
2015
Series/Report no.: 
WWWforEurope Policy Paper 21
Abstract: 
We study how the interaction between economic openness and competitive selection affects the effectiveness of employment (and entry) subsidisation. Within a twocountry heterogeneous-firms model with endogenous labour supply, we find that optimal employment subsidies are always positive even though they can have pro- or anti-competitive effects on industry selection depending on whether the economy is open or not. We also find that selection effects resulting from international competition and fiscal externalities may imply that non-cooperative policies entail under-subsidisation of employment. Whilst always having procompetitive selection effects on the industry, entry subsidies are shown to be less effective in raising employment and welfare than employment subsidies.
Subjects: 
optimal policy
employment subsidies
competitive selection
international trade
JEL: 
E22
E64
F12
F41
Document Type: 
Research Report
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