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The superiority among specific, demand ad valorem and cost ad valorem subsidy regimes

Author

Listed:
  • Wen-Jung Liang

    (National Dong Hwa University)

  • Kuang Cheng Andy Wang

    (Chang Gung University, Chang Gung Memorial Hospital)

  • Ping-Yao Chou

    (National Central University)

Abstract

We analyze the superiority of the specific, demand and cost ad valorem subsidies in industrial and export policies. The criterion employed to measure the ranking of the superiority of the subsidy policies in this paper is that, given an identical total output, the smaller the amount of the subsidy, the superior the subsidy policy. We show that the demand ad valorem subsidy is the least efficient policy, regardless of whether it is measured in regard to the industrial or export subsidy policies. The superiority related to the specific and cost ad valorem subsidies hinges upon the production technology. We can thus provide a theoretical explanation to the real world phenomenon as to why governments usually offer a specific or cost ad valorem subsidy policy to agricultural products and exports.

Suggested Citation

  • Wen-Jung Liang & Kuang Cheng Andy Wang & Ping-Yao Chou, 2018. "The superiority among specific, demand ad valorem and cost ad valorem subsidy regimes," Journal of Economics, Springer, vol. 123(1), pages 1-21, January.
    • Handle: RePEc:kap:jeczfn:v:123:y:2018:i:1:d:10.1007_s00712-017-0542-8
    DOI: 10.1007/s00712-017-0542-8
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    References listed on IDEAS

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    Cited by:

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    2. Kuang-Cheng Andy Wang & Ping-Yao Chou & Wen-Jung Liang, 2022. "Commodity taxes and rent extraction," Journal of Economics, Springer, vol. 135(3), pages 285-297, April.
    3. de Rus, Ginés & Socorro, M. Pilar, 2022. "Subsidies in air transport markets: The economic consequences of choosing the wrong mechanism," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 160(C).
    4. Kojun Hamada & Takao Ohkawa & Makoto Okamura, 2022. "Optimal taxation in a free‐entry Cournot oligopoly: The average cost function approach," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 1166-1192, May.
    5. Sajal Lahiri & Yingyi Tsai, 2019. "Foreign penetration and domestic competition," Journal of Economics, Springer, vol. 128(1), pages 27-45, September.
    6. K.L. Glen Ueng & Tsaur‐Chin Wu & Chih‐Ta Yen & Chih‐Ting Chou, 2022. "Market concentration and superiority among strategic export subsidy policies with taxation distortion and cost heterogeneity," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(2), pages 276-292, April.

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    More about this item

    Keywords

    Specific subsidy; Demand ad valorem subsidy; Cost ad valorem subsidy; The industrial policy; The export policy;
    All these keywords.

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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