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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Volume (Year): 4 (2006) Issue (Month): 2-3 (04-05) Pages: 513-522 Download reference. The following formats are available: HTML
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Christa Hainz & Hendrik Hakenes, 2007.
"The Politician and his Banker,"
Discussion Papers
222, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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Martin Gregor & Dalibor Roháč, 2009.
"The Optimal State Aid Control: No Control,"
Working Papers IES
2009/14, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Mar 2009.
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