Supporting Industries in the Age of Globalization and Regionalization: State Aid in the European Union

Aydin, Umut. (2007) Supporting Industries in the Age of Globalization and Regionalization: State Aid in the European Union. In: UNSPECIFIED, Montreal, Canada. (Unpublished)

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Abstract

[From the introduction]. Increasing mobility of capital pressures governments around the world to remain attractive locations for investment. In order to attract new firms or to maintain existing ones, governments at national and subnational levels offer various forms of subsidies to firms including direct grants, tax breaks, worker training credits and free land. Competition to attract footloose capital creates similar pressures for governments around the world, resulting in subsidy races that lead governments to bid against one another with growing subsidy packages. There is considerable variation, however, in the level and type of subsidies governments offer. Among European countries which are similarly situated in the global economy, for instance, Austria and the Netherlands provide subsidies for research and development, Portugal, France and Ireland focus on aiding specific manufacturing sectors, and Belgium and Italy stress regional assistance. What explains this variation in government support to businesses? In this paper, I argue that the mobility of capital in the economy and the domestic institutions and politics influence the level and type of subsidies offered by a government.

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