This chapter examines two aspects of economic policy: fiscal policy and industrial policy. The findings reject the “market economy” image of Hong Kong, and show that political considerations often override economic logic in shaping economic policy. In Hong Kong, economic ideology is frequently used as a tool to legitimate political choices about the economy, which are often biased towards the benefit of more privileged groups. The best example of how power distribution shapes resource allocation is the fiscal system, under which the politically powerful are often taxed less but benefit more. The political system dominated by the rich and powerful also deprives the government of sufficient state capacity and state autonomy for carrying out effective industrial policies to transform and restructure the economy.
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