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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

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/9635.

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Date of creation: 2006
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Publication status: Published in: European Economic Association. Journal (2006) v.4,p.513-522
Handle: RePEc:ulb:ulbeco:2013/9635

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References

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  1. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2002. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," Working Papers 452, Queen Mary, University of London, School of Economics and Finance.
  2. Richard Disney & Jonathan Haskel & Ylva Heden, 2003. "Restructuring and productivity growth in uk manufacturing," Economic Journal, Royal Economic Society, vol. 113(489), pages 666-694, 07.
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Cited by:
  1. 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.
  2. Áron Kiss, 2009. "Coalition politics and accountability," Public Choice, Springer, vol. 139(3), pages 413-428, June.
  3. 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.
  4. 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.
  5. Cécile Aubert & Oliver Falck & Stephan Heblich, 2008. "Subsidizing National Champions: An Evolutionary Perspective," CESifo Working Paper Series 2380, CESifo Group Munich.
  6. 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.
  7. 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.
  8. Christoph Bertsch & Claudio Calcagno & Mark Le Quement, 2009. "State aid and tacit collusion," Economics Working Papers ECO2009/36, European University Institute.

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