Economic Determinants of Government Subsidies
International Monetary Fund, Dec 1, 1998 - Business & Economics - 32 pages
The paper studies the economic determinants of government subsidies using panel data for 40 countries over 18 years (from 1975 to 1992) and finds that individual country-specific factors play a sizeable role in determining government subsidies. But it also suggests several characteristics—a small government, a small external current account deficit, and a productive structure geared more toward services and agriculture than manufacturing—may make it easier to keep subsidy expenditures down. The paper also suggests that globalization and the associated increase in openness are not impediments to reducing subsidies. In itself, an IMF-supported adjustment program is found not to be a significant determinant of government subsidy expenditures.
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II An Econometric Model of Government Subsidies
III The Data
IV Econometric Results
V Summary and Conclusions
Appendix 1 Overview on State Variables in the Model
Appendix 2 Variables Used and Data Sources
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5-percent level adjusted R2 agriculture in GDP autocorrelation coefﬁcient correlation country-speciﬁc ﬁxed effects current account balance current account deﬁcit current unrequited deﬁned degree of openness dependency ratio determinants of government dummy variable econometric economic determinants EFTA equity European Communities European Union expected sign expenditure to GDP external current account F-test ﬁxed effects model ﬁxed effects speciﬁcation GFS data govemment government expenditure equation government spending government subsidies government’s Hence IMF program IMF-supported adjustment programs IMF-supported programs independent variables inﬂuence insigniﬁcant interest expenditures International Monetary Fund measure of subsidies one-tailed test outlays overall payments to producers percentage point pooled model proxy Ratio of Government Ratio of interest reduced form relative to GDP share of agriculture share of GDP Share of manufacturing shows statistical signiﬁcance simple pooled SNA data SNA database structural model subsidies and transfers subsidies to GDP subsidy equation subsidy expenditures theoretical model total government expenditure