The Relative Efficiency of Automatic and Discretionary Industrial Aid
For the last two decades, the primary instruments for UK regional policy have been discretionary subsidies. Such aid is targeted at â€œadditionalâ€ 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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- Chiara Criscuolo & Ralf Martin & Henry G. Overman & John Van Reenen, 2012.
"The causal effects of an industrial policy,"
LSE Research Online Documents on Economics
58575, London School of Economics and Political Science, LSE Library.
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- Chiara Criscuolo & Ralf Martin & Henry G. Overman & John Van Reenen, 2012. "The Causal Effects of an Industrial Policy," SERC Discussion Papers 0098, Spatial Economics Research Centre, LSE.
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- 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.
- 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.
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