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The silver lining of red tape


  • Davies, Ronald B.


An increasing number of international agreements require “non-discrimination” from their participants, i.e. the government of one country cannot treat foreign firms differently from domestic firms. This is at odds with a government's desire to benefit its own citizens rather than foreign citizens. I show that the use of red tape – a wasteful application process – can achieve de-facto discrimination. Key to this result is firm heterogeneity since, although the red tape cost is the same across firms, only those sufficiently benefiting from an incentive program will find it worth the cost of applying. If the benefits of targeting subsidies outweigh the burden of red tape, red tape will be used.

Suggested Citation

  • Davies, Ronald B., 2013. "The silver lining of red tape," Journal of Public Economics, Elsevier, vol. 101(C), pages 68-76.
  • Handle: RePEc:eee:pubeco:v:101:y:2013:i:c:p:68-76 DOI: 10.1016/j.jpubeco.2013.02.011

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    Cited by:

    1. Pflüger, Michael & Suedekum, Jens, 2013. "Subsidizing firm entry in open economies," Journal of Public Economics, Elsevier, vol. 97(C), pages 258-271.

    More about this item


    Red tape; Export subsidies; Discrimination;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • F1 - International Economics - - Trade


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