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"Wasteful" Public Spending and State Aid Control

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  • Mathias Dewatripont
  • Paul Seabright

Abstract

The conventional academic rationale for supranational intervention to curb state aids to industry appeals to transfrontier spillovers. However, competition policy practitioners often speak in terms of curbing "wasteful" spending, regardless of whether or not any international spillovers are involved. Although it is often argued that such wasteful spending calls not for supranational state aid control but rather for better domestic political accountability, this paper argues that wasteful spending may be a by-product of accountability, not a symptom of its absence. Specifically, we describe a model in which politicians fund projects that are wasteful as a way to signal their diligence, and voters rationally reward them for this. We discuss implications for the role of state aid control mechanisms. (JEL: D72, D78, D82, H25) (c) 2006 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 4 (2006)
Issue (Month): 2-3 (04-05)
Pages: 513-522

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Handle: RePEc:tpr:jeurec:v:4:y:2006:i:2-3:p:513-522

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Cited by:
  1. Aubert, Cécile & Falck, Oliver & Heblich, Stephan, . "Subsidizing National Champions: An Evolutionary Perspective," Chapters in Economics, University of Munich, Department of Economics.
  2. Christoph Bertsch & Claudio Calcagno & Mark Le Quement, 2009. "State aid and tacit collusion," Economics Working Papers ECO2009/36, European University Institute.
  3. Christa Hainz & Hendrik Hakenes, 2009. "The Politician and his Banker – How to Efficiently Grant State Aid," Ifo Working Paper Series Ifo Working Paper No. 71, Ifo Institute for Economic Research at the University of Munich.
  4. Pierre-André Buigues & Khalid Sekkat, 2011. "Public Subsidies to Business: An International Comparison," Journal of Industry, Competition and Trade, Springer, vol. 11(1), pages 1-24, March.
  5. Giorgio Barba Navaretti & Anthony J. Venables, 2013. "Multinationals and industrial policy," Oxford Review of Economic Policy, Oxford University Press, vol. 29(2), pages 361-382, SUMMER.
  6. Hendrik Hakanes & Christa Hainz, 2008. "The Politician and his Banker," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_01, Max Planck Institute for Research on Collective Goods.
  7. Martin Gregor & Dalibor Roháč, 2009. "The Optimal State Aid Control: No Control," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 093-113, March.
  8. Áron Kiss, 2009. "Coalition politics and accountability," Public Choice, Springer, vol. 139(3), pages 413-428, June.
  9. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2008. "Chapter 4: Industrial policy," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 105-124, 02.
  10. Hussein Kassim & Bruce Lyons, 2013. "The New Political Economy of EU State Aid Policy," Journal of Industry, Competition and Trade, Springer, vol. 13(1), pages 1-21, March.
  11. de Bettignies, Jean-Etienne & Ross, Thomas W., 2009. "Public-private partnerships and the privatization of financing: An incomplete contracts approach," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 358-368, May.
  12. CARAGANCIU Anatolie & CARARE Petru, 2014. "State Aid Within The Framework Of Competition Policy," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 66(1), pages 37-44.

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