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November 25, 2011

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Gareth

I'm so confused. Martin Wolf tells us deficit reduction is bad, and that it is "an assault on profits". And now, the Coalition is also engaging in "corporate welfare". You economists are never happy.

http://www.ft.com/cms/s/0/448bb4e0-15f2-11e1-a691-00144feabdc0.html?nclick_check=1&ftcamp=rss

Ralph Musgrave

On the other hand in defence of this subsidy I’d argue:

No 1 is always a problem. To take a silly example, a baked beans subsidy would subsidise the consumption of tons of beans that would have been consumed anyway.

Also the exchequer costs here should not be confused with REAL or RESOURCE costs. Where £X of subsidy is directed at someone who would have been employed anyway, that is an exchequer cost, not a real cost. In contrast, the administration costs that a subsidy involves are real costs.

No. 2 (displacing other employees) – this is a problem with all subsidies.

Re No. 3, no employment subsidy of itself ever is fiscal expansion. The merit of employment subsidies is that they aim to reduce NAIRU, or improve the unemployment / inflation relationship, and that in turn facilitates fiscal expansion (or monetary expansion)

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