Tommaso Bighelli, Tibor Lalinsky, Filippo di Mauro, 19 August 2021

Government support in response to the Covid-19 pandemic has raised concerns about the misallocation of public funds and the creation of ‘zombie’ firms. This column uses firm-level data from CompNet for four EU countries to show that Covid-19 support was distributed rather efficiently. Government subsidies were distributed towards medium productive firms, and only marginally towards the undeserving ‘zombies’. However, the negative impact of the pandemic on productivity growth was large and resource reallocation sluggish, which calls for a removal of the blanket as soon as the situation allows. 

Bernard Hoekman, Douglas Nelson, 08 May 2020

Prior to the re-emergence of tariff nationalism as espoused by the Trump administration, subsidies were becoming a central source of trade tensions between major economies. The prospect of trade conflicts associated with the use of such instruments to combat climate change was increasing. Policy responses to the COVID-19 pandemic have led to a massive increase in subsidisation of firms in many countries. This column argues for a revisit of current approaches to addressing subsidy conflicts. The need for cooperation between the major economies to manage the international competitive spillovers of subsidies was evident pre-COVID-19. It has now become much more urgent.

Girum Abebe, Stefano Caria, Marcel Fafchamps, Paolo Falco, Simon Franklin, Simon Quinn, 09 December 2016

Youth unemployment is a growing problem around the world, particularly in urban areas. This column assesses the impact of labour market interventions in Addis Ababa targeting two issues commonly faced by unemployed youth: job search costs and a poor ability to signal their skills. A transport subsidy and a job application workshop were both found to have significant positive effects on youth labour market outcomes, pointing to the important role policymakers can play in helping young people find satisfying employment.

John Magnus, Timothy Brightbill, 16 April 2010

Does the US have a legal case for action against China’s exchange-rate policy? This column argues China’s currency regime qualifies as a subsidy in the legal sense and that the US has a legitimate case to respond within both the US and WTO legal frameworks. The high-profile difficulties are no reason to shy away from taking legal action.

William Kerr, Ramana Nanda, 27 April 2010

How should a government promote entrepreneurship? This column argues that providing support programmes for targeted sectors or companies is akin to “picking winners ex ante”. A far better approach is to encourage competition in the financial sector that facilitates experimentation in the real economy. Governments should forget about picking winners and focus on picking the right system.

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