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The Political Economy of State Aids in the European Community: Some Econometric Evidence

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  • Neven, Damien J

Abstract

This paper analyses the pattern of state aids to the manufacturing sector in ten EC countries for the period 1981--90. It focuses on determinants suggested by the political economy of state aids. We estimate a regression model where the intensity of state aids is accounted for by the weakness of government, their ideological orientation, the concentration of industry, and the timing of elections. The evidence indicates that the fractionalization of political parties is associated with higher state aids. We also find support for the view that state aids are higher under right-wing governments and when firms' interests are highly concentrated. This is consistent with a partisan view of government in which firms represent an important constituency for right-wing coalitions. By contrast, the timing of elections does not seem to matter. Finally, the paper observes significant fixed country effects. We gather evidence on the transparency of procedures used to allocate and control state aids and suggest that these fixed effects could be associated with lax procedures which enhance the scope for capture.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 945.

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Date of creation: Apr 1994
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Handle: RePEc:cpr:ceprdp:945

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Keywords: Capture; European Community; Political Economy; State Aids;

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Cited by:
  1. Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 1-27.
  2. Ioannis Ganoulis & Reiner Martin, 2001. "State aid control in the European Union— Rationale, stylised facts and determining factors," Intereconomics: Review of European Economic Policy, Springer, vol. 36(6), pages 289-297, November.
  3. José J. Sempere Monerris & Rafael Moner Colonques & Amparo Urbano Salvador, 1999. "Strategic policy and international economic integration," Working Papers. Serie AD 1999-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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