Abstract

GONZALEZ AGUILA, Ricardo. Budget Transfers to the Business Sector in Cuba: Foreign Exchange Subsidy or Subsidy for Inefficiency?. Econ. y Desarrollo [online]. 2021, vol.165, suppl.2  Epub May 01, 2021. ISSN 0252-8584.

Budget transfers to the Cuban business sector increased significantly in the last 15 years, reaching 25% of GDP in 2018. This increase was fundamentally a consequence of a strategy oriented to mitigate the effects of the overvaluation of the official exchange rate on the business sector, particularly on exportable products and import substitutes. The objective of this research is to characterize this subsidy scheme. The results suggest that the transfers allowed firms to cover at least part of their productive inefficiency, in part because of the design of the scheme was based on accounting criteria that limited incentives towards cost minimization. The main implication of the paper is that a relative price correction itself, such as, for example, that associated with “ordenamiento monetario”, would not be sufficient to promote aggregate productivity gains; on the contrary, it would have to be complemented with institutional and structural policies.

Keywords : grant scheme; import; Cuban business sector; multiple exchange rates.

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