Wasteful public spending and state aid control
AbstractThe 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 InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/9635.
Date of creation: 2006
Date of revision:
Publication status: Published in: European Economic Association. Journal (2006) v.4,p.513-522
Other versions of this item:
- Dewatripont, Mathias & Seabright, Paul, 2006. "Wasteful Public Spending and State Aid Control," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
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