Abstract
A growing body of scholarship has been focusing on the determinants of subsidy spending. Yet, this literature has mostly overlooked sectoral approaches to explain variation in aid allocations, which can provide useful insights about state-business relations that macro-analyses cannot. The article explores the political determinants of state aid in a key sector of the European economy, the automotive industry, which represents a crucial test case to analyse the relationship between big firms and the state. The article argues that there are two mechanisms through which governments may choose to allocate aid: achievement of policy goals and electoral competition. The resulting hypotheses are tested on an original dataset of over 120 state aid measures in 16 member states of the European Union (EU) where an automotive industry is present between 1992 and 2011. The results show that aid allocations are seldom found to be determined by a government’s preferences over its policy objectives. Instead, electoral rules such as the cultivation of a personal reputation by distribution of targeted benefits to a constituency may help legislators in their chances of being re-elected. The article concludes with limitations of the present study and suggestions for future research.
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