Hostname: page-component-cd9895bd7-fscjk Total loading time: 0 Render date: 2024-12-23T07:21:14.522Z Has data issue: false hasContentIssue false

The politics of State aid in the European Union: explaining variation in aid allocation among Member States

Published online by Cambridge University Press:  03 February 2020

Marco Schito*
Affiliation:
Department of Political Science, Trinity College Dublin, Ireland

Abstract

Despite widespread acknowledgement of the dangers of selective subsidisation, government support to business remains common practice. Looking at State aid allocations in the European Union, the article explores why some countries grant more aid than others. Scholarship has failed to address this issue in a comprehensive manner, focusing either on the responsiveness of governments to voters’ preferences or on the use of subsidies as a way to ensure the political survival of the incumbent. Using the lens of distributive politics, this article proposes a more comprehensive account of State aid politics that joins these two perspectives. By means of time-series cross-section regression analysis, it tests how aid allocation depends on the attainment of policy goals (namely correction of market failures), electoral pragmatism and responsibility towards international commitments. The results show that politicians are indeed electorally pragmatic, but not necessarily responsive, due to institutional constraints and international commitments.

Type
Research Article
Copyright
© The Author(s), 2020. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Achen, CH (2000) Why Lagged Dependent Variables Can Suppress the Explanatory Power of Other Independent Variables. In Annual Meeting of the Political Methodology Section of the American Political Science Association, Los Angeles, July 20–22.Google Scholar
Amyot, GG (2004) Business, The State and Economic Policy. London & New York: Routledge.Google Scholar
Armingeon, K, Wenger, V, Wiedemeier, F, Isler, C, Knöpfel, L, Weisstanner, D and Engler, S (2019) Comparative Political Data Set 1960-2017. Zurich: Institute of Political Science, University of Zurich.Google Scholar
Aydin, U (2006) Politics of State Aid in the European Union: Subsidies as Distributive Politics. In Fifteenth International Conference of the Council for European Studies, Chicago, IL, 29 March–1 April 2006.Google Scholar
Aydin, U (2007) Promoting Industries in the Global Economy: Subsidies in OECD Countries, 1989 to 1995. Journal of European Public Policy, 14(1): 115131.CrossRefGoogle Scholar
Bawn, K and Rosenbluth, F (2006) Short Versus Long Coalitions: Electoral Accountability and the Size of the Public Sector. American Journal of Political Science, 50(2): 251265.CrossRefGoogle Scholar
Beck, N and Katz, JN (1995) What to Do (and Not to Do) with Time-Series Cross-Section Data. American Political Science Review, 89(3): 634647.CrossRefGoogle Scholar
Beck, N and Katz, JN (2011) Modeling Dynamics in Time-series–cross-section Political Economy Data. Annual Review of Political Science, 14, 331352.CrossRefGoogle Scholar
Berry, WD, Golder, M and Milton, D (2012) Improving Tests of Theories Positing Interaction. The Journal of Politics, 74(3): 653671.CrossRefGoogle Scholar
Blais, A (1986) The Political Economy of Public Subsidies. Comparative Political Studies, 19(2): 201216.CrossRefGoogle Scholar
Blais, A and Bodet, MA (2006) Does Proportional Representation Foster Closer Congruence Between Citizens and Policy Makers? Comparative Political Studies, 39(10): 12431262.CrossRefGoogle Scholar
Blauberger, M (2009) Of “Good” and “Bad” Subsidies: European State Aid Control through Soft and Hard Law. West European Politics, 32(4): 719737.CrossRefGoogle Scholar
Brambor, T, Clark, WR and Golder, M (2006) Understanding Interaction Models: Improving Empirical Analyses. Political Analysis, 14(1): 6382.CrossRefGoogle Scholar
Braumoeller, BF (2004) Hypothesis Testing and Multiplicative Interaction Terms. International Organization, 58(4): 807820.CrossRefGoogle Scholar
Break, GF (1972) Subsidies as an Instrument for Achieving Public Economy Goals. In US Congress, Joint Economic Committee, The Economics of Federal Subsidy Programs–A Compendium of Papers, 92nd Congress, 2nd Session, Government Printing Office, 16.Google Scholar
Buigues, P-A and Sekkat, K (2011) Public Subsidies to Business: An International Comparison. Journal of Industry, Competition and Trade, 11(1): 124.CrossRefGoogle Scholar
Cao, X, Prakash, A and Ward, MD (2007) Protecting Jobs in the Age of Globalization: Examining the Relative Salience of Social Welfare and Industrial Subsidies in OECD Countries. International Studies Quarterly, 51(2): 301327.CrossRefGoogle Scholar
Carey, J and Hix, S (2013) Between Science and Engineering: Reflections on the APSA Presidential Task Force on Political Science, Electoral Rules, and Democratic Governance: Consequences of Electoral Rules for Patterns of Redistribution and Regulation. Perspectives on Politics, 11(3): 820824.CrossRefGoogle Scholar
Carey, J and Shugart, MS (1995) Incentives to Cultivate a Personal Vote: A Rank Ordering of Electoral Formulas. Electoral Studies, 14(4): 417439.CrossRefGoogle Scholar
Chari, R (2015) Life After Privatization. Oxford: Oxford University Press.CrossRefGoogle Scholar
Chari, R (2016) Evolution of Aid in the EU: Classifying Different Types of Countries, and the Financial and Economic Crisis. In Hofmann, H. and Micheau, C. (eds.), State Aid Law of the European Union. Oxford: Oxford University Press, 1217.Google Scholar
Chari, R and Cavatorta, F (2002) Economic Actors’ Political Activity in “Overlap Issues”: Privatisation and EU State Aid Control. West European Politics, 25(4): 119142.CrossRefGoogle Scholar
Cini, M (2001) The Soft Law Approach: Commission Rule-making in the EU’s State Aid Regime. Journal of European Public Policy, 8(2): 192207.CrossRefGoogle Scholar
Clift, B (2013) Economic Patriotism, the Clash of Capitalisms, and State Aid in the European Union. Journal of Industry, Competition and Trade, 13(1): 101117.CrossRefGoogle Scholar
Coppi, L (2011) The Role of Economics in State Aid Analysis and the Balancing Test. In Szyszczak, E. (ed.), Research Handbook on European State Aid Law. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing, 6489.Google Scholar
Crisp, BF, Jensen, NM, Rosas, G and Zeitzoff, T (2010) Vote-seeking Incentives and Investment Environments: The Need for Credit Claiming and the Provision of Protectionism. Electoral Studies, 29(2): 221226.CrossRefGoogle Scholar
Dewatripont, M and Seabright, P (2006) “Wasteful” Public Spending and State Aid Control. Journal of the European Economic Association, 4(2–3): 513522.CrossRefGoogle Scholar
Downs, A (1957) An Economic Theory of Democracy. New York, NY: Harper.Google Scholar
Edwards, MS and Thames, FC (2007) District Magnitude, Personal Votes, and Government Expenditures. Electoral Studies, 26(2): 338345.CrossRefGoogle Scholar
Engler, F and Zohlnhöfer, R (2019) Left Parties, Voter Preferences, and Economic Policy-making in Europe. Journal of European Public Policy, 26(11): 16201638.CrossRefGoogle Scholar
European Commission (1990) The Effect of Different State Aid Measures on Intra-Community Competition. Brussels: EU Publications.Google Scholar
European Commission (2014) State aid in the automotive sector: an overview. Competition policy brief 12, DG Competition, Brussels.Google Scholar
European Commission (2018a) State aid Control – What Is State Aid, https://ec.europa.eu/competition/state_aid/overview/index_en.html (accessed 6 November 2018).Google Scholar
European Commission (2018b) State Aid Scoreboard 2018, https://ec.europa.eu/competition/state_aid/scoreboard/index_en.html (accessed 6 November 2018).Google Scholar
Featherstone, K and Papadimitriou, D (2007) Manipulating Rules, Contesting Solutions: Europeanization and the Politics of Restructuring Olympic Airways. Government and Opposition, 42(1): 4672.CrossRefGoogle Scholar
Featherstone, K and Radaelli, CM (2003) The Politics of Europeanization. Oxford: Oxford University Press.CrossRefGoogle Scholar
Ferree, KE, Powell, GB and Scheiner, E (2013) Between Science and Engineering: Reflections on the APSA Presidential Task Force on Political Science, Electoral Rules, and Democratic Governance: How Context Shapes the Effects of Electoral Rules. Perspectives on Politics, 11(3): 810814.CrossRefGoogle Scholar
Ferruz, M and Nicolaides, P (2013) The Economics of State Aid for the Rescue and Restructuring of Firms in Difficulty: Theoretical Considerations, Empirical Analysis and Proposals for Reform. Bruges European Economic Research Papers 27/2013.Google Scholar
Franchino, F and Mainenti, M (2013) Electoral Institutions and Distributive Policies in Parliamentary Systems: An Application to State Aid Measures in EU Countries. West European Politics, 36(3): 498520.CrossRefGoogle Scholar
Franchino, F and Mainenti, M (2016) The Electoral Foundations to Noncompliance: Addressing the Puzzle of Unlawful State Aid in the European Union. Journal of Public Policy, 36(3): 407436.CrossRefGoogle Scholar
Franzese, RJ (2002) Macroeconomic Policies of Developed Democracies. New York, NY: Cambridge University Press.CrossRefGoogle Scholar
Franzese, RJ (2010) The Multiple Effects of Multiple Policymakers: Veto Actors Bargaining in Common Pools. Rivista italiana di scienza politica, 40(3): 341370.Google Scholar
Garrett, G (1998) Partisan Politics in the Global Economy. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Gilens, M (2012) Affluence and Influence: Economic Inequality and Political Power in America. Princeton, NJ: Princeton University Press.Google Scholar
Golden, M and Min, B (2013) Distributive Politics around the World. Annual Review of Political Science, 16, 7399.CrossRefGoogle Scholar
Golden, M and Picci, L (2008) Pork-barrel Politics in Postwar Italy, 1953–94. American Journal of Political Science, 52(2): 268289.CrossRefGoogle Scholar
Golder, M (2018) Democratic Electoral Systems, 1946-2016 dataset (Version 3.0), http://mattgolder.com/elections (accessed 16 April 2018).Google Scholar
Grossman, GM and Helpman, E (1996) Electoral Competition and Special Interest Politics. The Review of Economic Studies, 63(2): 265286.CrossRefGoogle Scholar
Grossman, GM and Helpman, E (2005a) Party Discipline and Pork Barrel Politics. NBER Working Paper 11396, National Bureau of Economic Research.CrossRefGoogle Scholar
Grossman, GM and Helpman, E (2005b) A Protectionist Bias in Majoritarian Politics. The Quarterly Journal of Economics, 120(4): 12391282.CrossRefGoogle Scholar
Gygli, S, Haelg, F, and Sturm, J-E (2018) The KOF Globalisation Index – Revisited. KOF Working Paper 439, ETH Zurich.Google Scholar
Hall, PA (1986) Governing the Economy: The Politics of State Intervention in Britain and France. USA: OUP.Google Scholar
Hallerberg, M and Marier, P (2004) Executive Authority, The Personal Vote, and Budget Discipline in Latin American and Caribbean Countries. American Journal of Political Science, 48(3): 571587.CrossRefGoogle Scholar
Hartmann, S (2014) Partisan Policy-Making in Western Europe: How Ideology Influences the Content of Government Policies. Mannheim: Springer.Google Scholar
Hibbs, DA (1977) Political Parties and Macroeconomic Policy. American Political Science Review, 71(04): 14671487.CrossRefGoogle Scholar
Hofmann, H (2016) State Aid Review in a Multi-level System: Motivations for Aid, Why Control It, and the Evolution of State Aid Law in the EU. In In Hofmann, H. and Micheau, C. (eds.), State Aid Law of the European Union. Oxford, New York: Oxford University Press, 311.Google Scholar
Hölscher, J, Nulsch, N and Stephan, J (2017) State Aid in the New EU Member States. JCMS: Journal of Common Market Studies, 55(4): 779797.Google Scholar
Huber, JD and Powell, GB (1994) Congruence Between Citizens and Policymakers in Two Visions of Liberal Democracy. World Politics, 46(3): 291326.CrossRefGoogle Scholar
Hwang, W and Lee, H (2014) Globalization, Factor Mobility, Partisanship, and Compensation Policies. International Studies Quarterly, 58(1): 92105.CrossRefGoogle Scholar
Jahn, D (2011) The Veto Player Approach in Macro-Comparative Politics: Concepts and Measurement. In König, T., Tsebelis, G. and Debus, M. (eds.), Reform Processes and Policy Change: Veto Players and Decision-Making in Modern Democracies. New York, NY: Springer, 4368.CrossRefGoogle Scholar
Jahn, D, Behm, T, Düpont, N, Oberst, C, and Rachuj, M (2017) PIP – Parties, Institutions & Preferences: ASPM Replication (Version 2017-02), http://comparativepolitics.uni-greifswald.de/data.html (accessed 19 April 2018).Google Scholar
Johnson, JW and Wallack, JS (2012) Electoral Systems and the Personal Vote Database, https://dataverse.harvard.edu/dataset.xhtml?persistentId=hdl:1902.1/17901 (accessed 16 April 2018).Google Scholar
Kang, S-G and Powell, GB (2010) Representation and Policy Responsiveness: The Median Voter, Election Rules, and Redistributive Welfare Spending. The Journal of Politics, 72(4): 10141028.CrossRefGoogle Scholar
Kassim, H and Lyons, B (2013) The New Political Economy of EU State Aid Policy. Journal of Industry, Competition and Trade, 13(1): 121.CrossRefGoogle Scholar
King, G and Roberts, ME (2015) How Robust Standard Errors Expose Methodological problems They Do not Fix, and What to Do about it. Political Analysis, 23(2): 159179.CrossRefGoogle Scholar
Ladrech, R (1994) Europeanization of Domestic Politics and Institutions: The Case of France. JCMS: Journal of Common Market Studies, 32(1): 6988.Google Scholar
Lancaster, TD (1986) Electoral Structures and Pork Barrel Politics. International Political Science Review, 7(1): 6781.CrossRefGoogle Scholar
Lavdas, KA and Mendrinou, MM (1999) Politics, Subsidies and Competition: The New Politics of State Intervention in the European Union. Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing.Google Scholar
Martin, LW and Vanberg, G (2011) Parliaments and Coalitions: The role of Legislative Institutions in Multiparty Governance. Oxford: Oxford University Press.CrossRefGoogle Scholar
Martin, LW and Vanberg, G (2013) Multiparty Government, Fiscal Institutions, and Public Spending. The Journal of Politics, 75(4): 953967.CrossRefGoogle Scholar
Mause, K and Gröteke, F (2017) The Economic Approach to European State Aid Control: A Politico-Economic Analysis. Journal of Industry, Competition and Trade, 17(2): 185201.CrossRefGoogle Scholar
McGowan, L and Wilks, S (1995) The First Supranational Policy in the European Union: Competition Policy. European Journal of Political Research, 28(2): 141169.CrossRefGoogle Scholar
Meltzer, AH and Richard, SF (1981) A Rational Theory of the Size of Government. Journal of Political Economy, 89(5): 914927.CrossRefGoogle Scholar
Micheau, C (2016) Evolution of State Aid Rules: Conceptions, Challenges, and Outcomes. In Hofmann, H. and Micheau, C., (eds.), State Aid Law of the European Union, Oxford, New York: Oxford University Press, 1835.Google Scholar
Mueller, DC (2003) Public Choice III. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Neven, DJ (1994) The Political Economy of State Aids in the European Community: Some Econometric Evidence. CEPR Discussion Paper 945.Google Scholar
Nordhaus, WD (1975) The Political Business cycle. The Review of Economic Studies, 42(2): 169190.CrossRefGoogle Scholar
Obinger, H and Zohlnhöfer, R (2007) Abschied vom Interventionsstaat? Der Wandel staatlicher Subventionsausgaben in den OECD-Ländern seit 1980. Swiss Political Science Review, 13(2): 203236.CrossRefGoogle Scholar
OECD (2001) Competition Policy in Subsidies and State Aid. DAFFE/CLP(2001)24, Paris: OECD.Google Scholar
Park, JH and Jensen, N (2007) Electoral Competition and Agricultural Support in OECD Countries. American Journal of Political Science, 51(2): 314329.CrossRefGoogle Scholar
Persson, T (2002) Do Political Institutions Shape Economic Policy?. Econometrica, 70(3): 883905.CrossRefGoogle Scholar
Persson, T and Tabellini, GE (2000) Political Economics: Explaining Economic Policy. Cambridge, MA and London, England: MIT Press.Google Scholar
Persson, T and Tabellini, GE (2003) The Economic Effects of Constitutions. Cambridge, MA and London, England: MIT Press.CrossRefGoogle Scholar
Powell, GB (2004) The Chain of Responsiveness. Journal of Democracy, 15(4): 91105.CrossRefGoogle Scholar
Powell, GB (2009) The Ideological Congruence Controversy: The Impact of Alternative Measures, Data, and Time Periods on the Effects of Election Rules. Comparative Political Studies, 42(12): 14751497.CrossRefGoogle Scholar
Rickard, SJ (2012a) Electoral Systems, Voters’ Interests and Geographic Dispersion. British Journal of Political Science, 42(4): 855877.CrossRefGoogle Scholar
Rickard, SJ (2012b) A Non-Tariff Protectionist Bias in Majoritarian Politics: Government Subsidies and Electoral Institutions. International Studies Quarterly, 56(4): 777785.CrossRefGoogle Scholar
Rickard, SJ (2012c) Welfare Versus Subsidies: Governmental Spending Decisions in An Era of Globalization. The Journal of Politics, 74(4): 11711183.CrossRefGoogle Scholar
Rickard, SJ (2018) Spending to Win: Political Institutions, Economic Geography, and Government Subsidies. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Rogowski, R and Kayser, MA (2002) Majoritarian Electoral Systems and Consumer Power: Price-level Evidence from the OECD Countries. American Journal of Political Science, 46(3): 526539.CrossRefGoogle Scholar
Rose, R (2014) Responsible Party Government in a World of Interdependence. West European Politics, 37(2): 253269.CrossRefGoogle Scholar
Schmidt, VA (2002) The Futures of European capitalism. Oxford: Oxford University Press.CrossRefGoogle Scholar
Schmitt, C (2016) Panel Data Analysis and Partisan Variables: How Periodization Does Influence Partisan Effects. Journal of European Public Policy, 23(10): 14421459.CrossRefGoogle Scholar
Schmitt, C and Zohlnhöfer, R (2019) Partisan Differences and the Interventionist State in Advanced Democracies. Socio-Economic Review, 17(4): 969992.CrossRefGoogle Scholar
Schuster, P, Schmitt, C and Traub, S (2013) The Retreat of the State from Entrepreneurial Activities: A Convergence Analysis for OECD Countries, 1980–2007. European Journal of Political Economy, 32: 95112.CrossRefGoogle Scholar
Smith, MP (1998) Autonomy by the Rules: the European Commission and the Development of State Aid Policy. JCMS: Journal of Common Market Studies, 36(1): 5578.Google Scholar
Smith, MP (2000) The Commission Made Me Do It: The European Commission as a Strategic Asset in Domestic Politics. In Nugent, N. (ed.), At the Heart of the Union. UK: Palgrave Macmillan, 170189.Google Scholar
Smith, MP (2001a) How Adaptable is the European Commission? The Case of State Aid Regulation. Journal of Public Policy, 21(3): 219238.CrossRefGoogle Scholar
Smith, MP (2001b) Who are the Agents of Europeanization?: EC Competition Policy and Germany’s Law Banks. EUI Working Paper RSC 2001/39, European University Institute.Google Scholar
Thatcher, M (2014) European Commission Merger Control: Combining Competition and the Creation of Larger European Firms. European Journal of Political Research, 53(3): 443464.CrossRefGoogle Scholar
Thomson, R, Royed, T, Naurin, E, Artés, J, Costello, R, Ennser-Jedenastik, L, Ferguson, M, Kostadinova, P, Moury, C and Pétry, F (2017) The Fulfillment of Parties’ Election Pledges: A Comparative Study on the Impact of Power Sharing. American Journal of Political Science, 61(3): 527542.CrossRefGoogle Scholar
Tsebelis, G (2002) Veto Players: How Political Institutions Work. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
van Buiren, K, in ‘t Veld, D and van der Voort, J (2019) State Aid and Competition: Application of a Social Welfare Criterion to State Aid. Journal of Industry, Competition and Trade, 19(3): 389411.CrossRefGoogle Scholar
Verdier, D (1995) The Politics of Public Aid to Private Industry The Role of Policy Networks. Comparative Political Studies, 28(1): 342.CrossRefGoogle Scholar
Volkens, A, Lehman, P, Matthieß, T, Merz, N, Regel, S, and Weßels, B (2017) The Manifesto Data Collection. Manifesto Project (MRG/CMP/MARPOR). Version 2017a, https://doi.org/10.25522/manifesto.mpds.2017a.CrossRefGoogle Scholar
Weingast, BR, Shepsle, KA and Johnsen, C (1981) The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics. Journal of Political Economy, 89(4): 642664.CrossRefGoogle Scholar
Wilkins, AS (2018) To Lag or Not to Lag?: Re-evaluating the Use of Lagged Dependent Variables in Regression Analysis. Political Science Research and Methods, 6(2): 393411.CrossRefGoogle Scholar
Wilson, SE and Butler, DM (2007) A Lot More To Do: The Sensitivity of Time-series Cross-section Analyses to Simple Alternative Specifications. Political Analysis, 15(2): 101123.CrossRefGoogle Scholar
World Bank (2018) GDP Growth (annual %), https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG (accessed 8 November 2018).Google Scholar
Zahariadis, N (1997) Why State Subsidies?. Evidence from European Community Countries, 1981–1986. International Studies Quarterly, 41(2): 341354.CrossRefGoogle Scholar
Zahariadis, N (2001) Asset specificity and state subsidies in industrialized countries. International Studies Quarterly, 45(4): 603616.CrossRefGoogle Scholar
Zahariadis, N (2002) The Political Economy of State Subsidies in Europe. Policy Studies Journal, 30(2): 285298.CrossRefGoogle Scholar
Zahariadis, N (2005) Policy Networks, Elections, and State Subsidies. Review of Policy Research, 22(2): 115131.Google Scholar
Zahariadis, N (2008) State Subsidies in the Global Economy. New York: Palgrave Macmillan.CrossRefGoogle Scholar
Zahariadis, N (2010a) Discretion by The Rules: European State Aid Policy and The 1999 Procedural Regulation. Journal of European Public Policy, 17(7): 954970.Google Scholar
Zahariadis, N (2010b) State Aid and Partisan Government in the European Union. Social Science Quarterly, 91(2): 436454.CrossRefGoogle Scholar
Zahariadis, N (2013) Winners and Losers in EU State aid Policy. Journal of Industry, Competition and Trade, 13(1): 143158.CrossRefGoogle Scholar
Zohlnhöfer, R, Engler, F and Dümig, K (2018) The Retreat of The Interventionist State in Advanced Democracies. British Journal of Political Science, 48(2): 535562.CrossRefGoogle Scholar
Supplementary material: Link

Schito Dataset

Link
Supplementary material: PDF

Schito supplementary material

Online Appedix C

Download Schito supplementary material(PDF)
PDF 102.9 KB
Supplementary material: PDF

Schito supplementary material

Online Appendix B

Download Schito supplementary material(PDF)
PDF 183.3 KB
Supplementary material: PDF

Schito supplementary material

Online Appendix A

Download Schito supplementary material(PDF)
PDF 160.5 KB