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The Role of Additionality in the EU Cohesion Policies: An Example of Firm-Level Investment Support

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  • Andries Brandsma
  • Pavel Ciaian
  • d'Artis Kancs

Abstract

Additionality is one of the key principles driving the functioning of the EU Cohesion Policies (ECP). The present paper studies how additionality affects the distributional effects of the ECP. Using the example of the firm-level investment support, we analyse the role of additionality and co-financing rate in differently competitive markets. We find that the investment additionality and the level of competition importantly affect the distributional effects of the ECP. Imposing additionality to the ECP investments in a perfectly competitive environment causes distortions in the capital market and leads to lower welfare levels. In contrast, without the enforcement of additionality, the distortions are zero and the support fully benefits firms. In an imperfectly competitive environment the firm-level investment support may increase capital use and may be welfare increasing with and without the enforcement of the investment additionality.

Suggested Citation

  • Andries Brandsma & Pavel Ciaian & d'Artis Kancs, 2010. "The Role of Additionality in the EU Cohesion Policies: An Example of Firm-Level Investment Support," EERI Research Paper Series EERI_RP_2010_46, Economics and Econometrics Research Institute (EERI), Brussels.
    • Handle: RePEc:eei:rpaper:eeri_rp_2010_46
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    Cited by:

    1. Andries Brandsma & D'Artis Kancs, 2015. "RHOMOLO: A Dynamic General Equilibrium Modelling Approach to the Evaluation of the European Union's R&D Policies," Regional Studies, Taylor & Francis Journals, vol. 49(8), pages 1340-1359, August.
    2. repec:taf:regstd:v:50:y:2016:i:9:p:1579-1594 is not listed on IDEAS
    3. Bernini, Cristina & Cerqua, Augusto & Pellegrini, Guido, 2017. "Public subsidies, TFP and efficiency: A tale of complex relationships," Research Policy, Elsevier, vol. 46(4), pages 751-767.
    4. Olga Ivanova & d'Artis Kancs & Dirk Stelder, 2009. "Modelling Inter-Regional Trade Flows: Data and Methodological Issues in Rhomolo," EERI Research Paper Series EERI RP 2009/31, Economics and Econometrics Research Institute (EERI), Brussels.
    5. Francesco Di Comite & D'Artis Kancs, 2015. "Macro-Economic Models for R&D and Innovation Policies - A Comparison of QUEST, RHOMOLO, GEM-E3 and NEMESIS," JRC Working Papers JRC94323, Joint Research Centre (Seville site).
    6. Jerzy Michalek & Pavel Ciaian & D'Artis Kancs, 2016. "Investment Crowding Out: Firm-Level Evidence from Northern Germany," Regional Studies, Taylor & Francis Journals, vol. 50(9), pages 1579-1594, September.

    More about this item

    Keywords

    Additionality; EU Cohesion Policy; investment subsidy; regional development.;

    JEL classification:

    • F1 - International Economics - - Trade
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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