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Mild Government Failure

Author

Listed:
  • Shang-Jin Wei
  • Jianhuan Xu
  • Ge Yin
  • Xiaobo Zhang

Abstract

A relatively mild form of government failure - for example, bureaucrats can count but do not differentiate quality - can significantly affect the efficacy of industrial policy. We investigate this idea in the context of China's largest pro-innovation industrial policy using a structural model. We find that the return to the subsidy program is -19.7\% (but would be 7.8\% if the mild government failure can be removed). Furthermore, the welfare loss is exacerbated by patent trade.

Suggested Citation

  • Shang-Jin Wei & Jianhuan Xu & Ge Yin & Xiaobo Zhang, 2023. "Mild Government Failure," NBER Working Papers 31178, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31178
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    Cited by:

    1. Li, Guangwei & Branstetter, Lee G., 2024. "Does “Made in China 2025” work for China? Evidence from Chinese listed firms," Research Policy, Elsevier, vol. 53(6).
    2. Cao, Linyi & Jiang, Helu & Li, Guangwei & Zhu, Lijun, 2024. "Haste makes waste? Quantity-based subsidies under heterogeneous innovations," Journal of Monetary Economics, Elsevier, vol. 142(C).
    3. Zhang, Yiran, 2021. "Technology Market Frictions and Economic Development: Evidence from China," MPRA Paper 122159, University Library of Munich, Germany, revised 21 Sep 2024.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy

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