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The Effects of Fiscal Subsidy on Industrial Structure
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TitleThe Effects of Fiscal Subsidy on Industrial Structure  
AuthorQian Zongxin,Guo Qingwang and Li Rong  
Key Wordssubsidy, industrial structure, economic growth 
AbstractIn this paper, we build a model of capital deepening-led industrial structural transition, based on the two-sector model of Acemoglu and Guerrieri (2008). Using this model, we analyze the effects of fiscal subsidy which is biased towards the service industry on industrial structure and economic growth. Then, we use the data on publicly listed companies and panel data models to test the theory. Both our theory and empirics suggest that the subsidy policy does attract factors to move into the service industry, which increases the output share of the service industry. But this policy also distorts the allocation of resources, and reduces the output of the manufacturing sector. Hence, the subsidy biased towards the service industry is helpful for industrial structural changes, but also has negative impacts on economic growth. 
Serial NumberWP1218 
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