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"Wasteful" public spending and state aid control

Listed author(s):
  • Mathias Dewatripont
  • Paul Seabright

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. © 2006 by the European Economic Association.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/165574.

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Date of creation: Apr 2006
Publication status: Published in: Journal of the European Economic Association (2006) v.4 n° 2-3,p.513-522
Handle: RePEc:ulb:ulbeco:2013/165574
Note: SCOPUS: cp.j
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