The Failure of Strategic Industrial Policies Due to the Manipulation by Firms
The strategic effects of subsidies on output and subsidies on investment differ substantially in dynamic models where a government's commitment ability is limited. Output subsidies remain effective even as the period of commitment vanishes, but investment subsidies may become completely ineffective. This difference has been obscured because most existing models of strategic trade policy are static.
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NBER Working Papers
1464, National Bureau of Economic Research, Inc.
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