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

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Listed author(s):
  • 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.

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Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2010_46.

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Date of creation: 26 Nov 2010
Handle: RePEc:eei:rpaper:eeri_rp_2010_46
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Keywords: Additionality; EU Cohesion Policy; investment subsidy; regional development.;

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Find related papers by 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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  1. Lee, Jong-Wha, 1996. "Government Interventions and Productivity Growth," Journal of Economic Growth, Springer, vol. 1(3), pages 391-414, September.
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  7. Andries Brandsma & d'Artis Kancs & Philippe Monfort & Alexandra Rillaers, 2015. "RHOMOLO: A dynamic spatial general equilibrium model for assessing the impact of cohesion policy," Papers in Regional Science, Wiley Blackwell, vol. 94, pages 197-221, November.
  8. Julda Kielyte, 2008. "Estimating Panel Data Models in the Presence of Endogeneity and Selection," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 51(2), pages 1-19.
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  15. Gadd, Håkan & Hansson, Gustav & Månsson, Jonas, 2008. "Evaluating the impact of firm subsidy using a multilevel propensity score approach," CAFO Working Papers 2009:3, Centre for Labour Market Policy Research (CAFO), School of Business and Economics, Linnaeus University.
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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. 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.
  3. 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.
  4. Francesco Di Comite & D'Artis Kancs & Wouter Torfs, 2015. "Macroeconomic Modelling of R&D and Innovation Policies," JRC Working Papers JRC89558, Joint Research Centre (Seville site).
  5. Michalek, Jerzy & Ciaian, Pavel & Kancs, d'Artis, 2013. "Firm-Level Evidence Of Deadweight Loss Of Investment Support Policies: A Case Study Of Dairy Farms In Schleswig-Holstein," Proceedings Issues, 2013: Productivity and Its Impacts on Global Trade, June 2-4, 2013. Seville, Spain 152257, International Agricultural Trade Research Consortium.

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