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The Relative Efficiency of Automatic and Discretionary Industrial Aid

  • Kim Swales

    ()

    (Department of Economics, University of Strathclyde)

For the last two decades, the primary instruments for UK regional policy have been discretionary subsidies. Such aid is targeted at “additional†projects - projects that would not have been implemented without the subsidy - and the subsidy should be the minimum necessary for the project to proceed. Discretionary subsidies are thought to be more efficient than automatic subsidies, where many of the aided projects are non-additional and all projects receive the same subsidy rate. The present paper builds on Swales (1995) and Wren (2007a) to compare three subsidy schemes: an automatic scheme and two types of discretionary scheme, one with accurate appraisal and the other with appraisal error. These schemes are assessed on their expected welfare impacts. The particular focus is the reduction in welfare gain imposed by the interaction of appraisal error and the requirements for accountability. This is substantial and difficult to detect with conventional evaluation techniques.

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File URL: http://www.strath.ac.uk/media/departments/economics/researchdiscussionpapers/2008/DP12.pdf
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Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 0812.

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Length: 48 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:str:wpaper:0812
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  1. Chiara Criscuolo & Ralf Martin & Henry Overman & John Van Reenen, 2012. "The Causal Effects of an Industrial Policy," NBER Working Papers 17842, National Bureau of Economic Research, Inc.
  2. Gary Gillespie & Peter Mcgregor & J. Kim Swales & Ya Ping Yin, 2001. "The Displacement and Multiplier Effects of Regional Selective Assistance: A Computable General Equilibrium Analysis," Regional Studies, Taylor & Francis Journals, vol. 35(2), pages 125-139.
  3. Kim Swales, 1997. "A cost-benefit approach to the evaluation of regional selective assistance," Fiscal Studies, Institute for Fiscal Studies, vol. 18(1), pages 73-85, February.
  4. Colin Wren, 2007. "Reconciling Practice with Theory in the Micro-Evaluation of Regional Policy," International Review of Applied Economics, Taylor & Francis Journals, vol. 21(3), pages 321-337.
  5. Eric Mcvittie & J. Kim Swales, 2007. "'Constrained Discretion' in UK Monetary and Regional Policy," Regional Studies, Taylor & Francis Journals, vol. 41(2), pages 267-280.
  6. Holden, Darryl R & Swales, J K, 1995. "The Additionality, Displacement and Substitution Effects of Factor Subsidies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 42(2), pages 113-26, May.
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