A Subsidy That is Inversely Related to the Product Price | Zendy

Takahiko Kiso | Zendy

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A Subsidy That is Inversely Related to the Product Price

Author(s) -

Takahiko Kiso

Publication year - 2022

Publication title -

the economic journal

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.683

H-Index - 160

eISSN - 1468-0297

pISSN - 0013-0133

DOI - 10.1093/ej/ueac002

Subject(s) - subsidy , payment , quality (philosophy) , product (mathematics) , production (economics) , government (linguistics) , economics , public economics , business , industrial organization , microeconomics , finance , market economy , philosophy , linguistics , geometry , mathematics , epistemology

This study considers a new subsidy design to support the purchase or production of target products. Under the proposed design, subsidy payments are inversely related to product prices. Compared to ‘flat’ subsidies, this design reduces producers’ market power and the subsidy benefits passed on to them, improving the cost-effectiveness of government spending (by up to 50% according to simulations based on an actual subsidy programme). Additionally, this subsidy’s cost-effectiveness and incidence can be adjusted flexibly by changing the policy parameters. Finally, the subsidy design can be modified to provide larger payments to higher-quality products, thereby offsetting disincentives for quality improvement.

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