State Aid Policies in Response to the COVID-19 Shock: Observations and Guiding Principles

Massimo Motta,Martin Peitz

doi:10.1007/s10272-020-0902-4

Massimo Motta, Martin Peitz

Open Access

https://doi.org/10.1007/s10272-020-0902-4

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Abstract

As a general principle, state aid to firms and sector-specific support schemes should be used only when there are market failures; that is, when there are good reasons to believe that the market would not deliver efficient and/or equitable outcomes.

Highlights

Thanks to COVID-19, markets have disappeared from one day to the and firms’ assets in most sectors have been rapidly depleting
Firms that are profitable in normal times face liquidity problems as a result of a negative supply and/or demand shock, and the financial sector does not satisfy the individual needs for liquidity support because of the large macroeconomic risks
State aid can be seen as a response to a system failure resulting from a severe economic shock, either hitting one sector or – as in the case of the coronavirus crisis – simultaneously hitting several sectors

Summary

Introduction

Thanks to COVID-19, markets have disappeared from one day to the and firms’ assets in most sectors have been rapidly depleting. Well-designed liquidity support and employment subsidies can be applied across the whole economy, provided they are effectively targeted in the sense that only those firms negatively affected will participate in the programme.

Results

Conclusion