Archive 2002

• 10.09.2002

  The Economic Implications of Government Support for the Steel Industry: The Case of Ukraine

  (Code:16)

  So far during the transition period, the Ukrainian steel industry appears to have been one of the industries favoured by the government. The favours came and still come in different ways of soft budget constraints: tax subsidies in the form of tax arrears, write-offs and restructuring of arrears, tax privileges in the guise of an “economic experiment” at ore-mining and metallurgical enterprises; forbearance towards overdue payables and nonmonetary transactions; and granting of bank loans with government guarantees. The major objective of the paper is to look at the economic implications of this kind of government support for the steel industry, and in particular at the net welfare implications. Government interventions usually tend to create dead-weight losses that should be taken into account when government policies are designed and implemented; and the overall benefits should be compared with these public costs. In this paper, a partial equilibrium analysis is applied to study the effects of an ad-valorem subsidy in the form of foregone budget revenues, resulting from reducing the existing EPT rate (30%) down to 9% for metallurgical enterprises under small- and large-country assumptions. The paper concludes with policy implications and recommendations.

  Attached file  (676.3 kb)
  Authors:  Legeida Nina
  Tags:  Center of economic research