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State Aid to Business in the European Union: a Focus on the Car Sector

  • Marcella Nicolini

    ()

    (Department of Economics and Management, University of Pavia)

  • Carlo Scarpa

    ()

    (Department of Economics, University of Brescia)

  • Paola Valbonesi

    ()

    (Department of Economics, University of Padova)

Making use of an original dataset we empirically investigate the determinants of state aid to the car industry in the European Union. The EU regulatory system on state aids and the long history of governments' grants to this industry make this an interesting case study. Our findings show that in the period 1992-2008 -controlling for a number of variables - subsidies to the car sector have shown a decreasing trend, mainly because of the reduction in the aid aimed at increasing the productive capacity of firms. We find a pattern of a dynamic strategic game among EU countries, whereby aiding a firm induces other member states to grant more subsidies; this seems to be mainly driven by rescue and resctruring aid. Overall, economic and political variables (industry's value added, country's income per capita, election year, government's political orientation) are found to significantly affect aid to the car industry.

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File URL: http://economia.unipv.it/docs/dipeco/quad/ps/RePEc/pav/demwpp/DEMWP0001.pdf
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Paper provided by University of Pavia, Department of Economics and Management in its series DEM Working Papers Series with number 001.

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Length: 31 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:pav:demwpp:demwp0001
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