Export Subsidies as Instruments of Economic and Foreign Policy

by Stephen W. Salant

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The use of direct and indirect subsidies to promote exports is a popular instrument of trade policy in many countries. Of particular concern in this study is the use of such subsidies to promote Western exports to the Soviet Union and its allies. It investigates some of the arguments that could be used to justify such subsidies either because they improve the economic welfare of the exporting countries or because they promote behavior by the Soviet Union that is more compatible with the goals of the West. The study concludes that, on balance, there is no strong justification for export subsidies on economic grounds, but that it is possible to adopt a two-tier tax/subsidy system that may produce foreign policy benefits that outweigh the economic effects.

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