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Business Subsidies and Bureaucratic Behaviour - A Revised Approach

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  • Takis Venetoklis

Abstract

This dissertation is a collection of three studies whose central theme is the business subsidies policy implemented in Finland during the 1990s by the ministry of Trade and Industry (KTM). The purpose is to examine whether the policy is effective and at the same time explain the rationale behind it. The first study measures econometrically the impact of business subsidies on the growth of value added of firms. The results indicate that the impact is positive but extremely low considering the amount of subsidies spent. This in turn raises questions on the effectiveness of the business subsidies policy currently in force. The second study surveys other evaluation studies of business subsidies that were conducted in Finland and abroad. The methods found in the surveyed studies are associated with the results produced. When primary data are utilised (estimates of impacts are taken directly from the subsidised firms) the results are positive. On the contrary, when secondary data are used to measure impact and scientific methods are applied, the results lean more on the negative side. If impact studies on business subsidies suggest ineffectiveness why is such policy still adopted? The third study attempts to answer this question by approaching the problem not from the demand side (the recipient firms) but from the supply side (the organisation designing and distributing the subsidies to firms). It tests whether the behaviour of the KTM's civil servants, when distributing business subsidies to firms, is in line with William Niskanen's (1971) bureau budget maximising theory. The empirical results support the theory on some accounts.

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Bibliographic Info

Paper provided by Government Institute for Economic Research Finland (VATT) in its series Research Reports with number 83.

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Date of creation: 27 Nov 2001
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Handle: RePEc:fer:resrep:83

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Related research

Keywords: Business subsidies; bureaucratic behaviour; budget maximisation; evaluation methods; value added growth;

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References

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  1. Roper, Stephen & Hewitt-Dundas, Nola, 1999. "Grant Assistance and Small Firm Development in Northern Ireland and the Republic of Ireland," ERSA conference papers ersa99pa396, European Regional Science Association.
  2. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
  3. Otto Davis & M. Dempster & Aaron Wildavsky, 1966. "On the process of budgeting: An empirical study of congressional appropriation," Public Choice, Springer, vol. 1(1), pages 63-132, December.
  4. Gerd Schwartz & Réjane Hugounenq & Benedict J. Clements, 1995. "Government Subsidies - Concepts, International Trends, and Reform Options," IMF Working Papers 95/91, International Monetary Fund.
  5. William G. Gale, 1989. "Collateral, Rationing, and Government Intervention in Credit Markets," UCLA Economics Working Papers 554, UCLA Department of Economics.
  6. Takis Venetoklis, 1999. "Process Evaluation of Business Subsidies in Finland. A Quantitative Approach," Research Reports 58, Government Institute for Economic Research Finland (VATT).
  7. P. J. A. Robson & R. J. Bennett, 2000. "The use and impact of business advice by SMEs in Britain: an empirical assessment using logit and ordered logit models," Applied Economics, Taylor & Francis Journals, vol. 32(13), pages 1675-1688.
  8. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-43, December.
  9. Benedict J. Clements & Hugo Rodríguez & Gerd Schwartz, 1998. "Economic Determinants of Government Subsidies," IMF Working Papers 98/166, International Monetary Fund.
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Cited by:
  1. Mika Haapanen & Anu Tokila & Jari Ritsilä, 2005. "When are investment subsidies crucial for investments?," ERSA conference papers ersa05p466, European Regional Science Association.
  2. Aki Kangasharju, 2005. "Do Wages Subsidies Increase Employment in Subsidised Firms?," Discussion Papers 378, Government Institute for Economic Research Finland (VATT).

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