State Aid Policy Research Articles

The Gentle Art of Corporate Seduction: Tax Incentives in the United States and the European Union

Tax competition among the States, in particular the use of targeted tax incentives, is a compelling problem in our federal system. In order to attract corporations and the employment opportunities they represent, States engage in a race to the bottom through destructive bidding wars. This article discusses the considerably different approaches used by the U.S. and the European Union to temper the ability of their States and Member States to provide tax subsidies and concludes that lessons can be learned from the EU experience. This article sets forth the current approaches to distinguishing between appropriate and inappropriate tax incentives. In the EU, the Member State bears the burden of proving that the proposed tax incentive does not distort the common market. Any new incentive is subject to a formal investigation by the Commission to determine whether it is compatible with the common market. The U.S. does not, however, have a governmental entity that is analogous to that of the European Commission. Furthermore, in the U.S. it appears that the standing doctrine effectively keeps most parties from challenging the various States' tax incentives. EU state aid policy enables Member States to resist protectionist pleas from companies such that the EU is experiencing a downward trend in the use of tax incentives and virtually no use of the targeted tax incentives utilized so widely by the American States. This article recommends the formation of a group under the auspices of the Multistate Tax Commission to promulgate a State Code of Conduct for Business Taxation analogous to the EU's Code of Conduct. This Code of Conduct would prohibit States from offering targeted tax incentives.

State Aid Policies and Underground Activities

The main goal of this paper is to examine the implications of firm-oriented fiscal policies, such as capital subsidies and tax allowances, in an economy with an underground sector. In addition, we investigate whether the technology structure of hidden production may facilitate or counteract the effects of fiscal policies on firm behavior. Among our results we stress the following: first, capital subsidies promote tax evasion; these subsidies induce firms to increase actual capital accumulation (a level effect), but also produce a reduction in the regular share of aggregate capital stock (a composition effect). Second, tax relief reduces underground activities and fosters capital accumulation, as well as aggregate production. Third, the technology structure matters for determining how to allocate resources between formal and informal production, hence the amount of reported revenues.

Europeanization of Polish Competition Policy

This article examines the impact of the European Union (EU) on competition policy in Poland in the pre‐accession stage. It explains the variation in the Europeanization of antitrust and state aid policies assessed on the basis of compliance with EU accession criteria: while antitrust legislation was incrementally harmonized with the EU acquis, it took almost ten years to introduce law regulating state aid. Drawing from rational choice institutionalism it is argued that compliance is a function of a structure of domestic veto players combined with their preferences. This study of Europeanization in Poland shows that compliance with EU accession criteria was conditioned by domestic political economy. It also points to two characteristics of the Polish political system: party system instability and emergent euroscepticism.

Europeanization as an Interactive Process: German Public Banks Meet EU State Aid Policy*

AbstractMuch of the Europeanization literature assumes that while European integration may upset certain features of national policy‐making structures, it will not be able to modify systemic characteristics. This article shows that central features of national policy‐making structures may be overthrown by European integration. However, this usually requires a proactive attitude by subnational actors with an interest in further integration. The argument is illustrated by the case of German public banks and the conflict with regard to EU state aid rules. In this case, competing private banks finally chose to circumvent existing national policy‐making structures in order to obtain the abolition of state guarantees, which it was considered put private banks at a competitive disadvantage.

III. Social Policy

Social policy is undergoing review, the aim being to consolidate the fragmented nature of social policy law, and to provide for the integration of all Community policies. This is part of a larger where the EU is attempting to provide a holistic approach towards all policies, ensuring that they meet the demands placed upon governments, as well as private undertakings, in the enlarged single market. Of particular significance is the interaction between social policy law and competition law, especially in relation to state aid and merger policy. The Lisbon Process, now at mid-term, has not been successful in delivering the projected results. Thus throughout 2005 the European Union focused upon revitalizing the Lisbon agenda with the focus upon improving the quality of work as well as combating unemployment.1

Can State Aid Policy Become more Economic Friendly?

With the recent and ongoing reform of most areas of European competition law (mergers, Art. 81 and now Art. 82 of the EC Treaty) State aid rules appear more and more as an anomaly. This is both from the institutional point of view, where State aid remain the exclusive domain of the European Commission, and in being one of the few last areas of competition law where decisions are based on presumptions rather than competitive effects. This article argues that the two aspects are strictly linked. Because the European Commission has to review a large number of State aid cases every year it lacks the resources to go beyond an analysis based on presumptions. This suggests that a different system could improve the application of State aid rules. It is claimed here that a strong case for a supranational control of State aid is only warranted when the measure is likely to result in significant negative spillovers. It follows that the European Commission could focus only on cases where significant effects on trade are likely and delegate the analysis of cases where the effects are purely national to independent national authorities in each Member State.

Services of General Economic Interest in the State Aids Regime: Proceduralisation of Political Choices?

This article is an attempt at the systemization of the recent developments in the Community State Aid policy with regard to services of general economic interest. The analysis of the relationship between article 87 and 86(2) of the Treaty is illustrated by the case law of the European Court of Justice. Particular attention is paid to the practical impact of the Altmark judgment and its theoretical implications. Critical evaluation of the conditions for financing of service of general economic interest is taken up in detail. The conclusion offers a view of the present and prospective Community impact on the development of services of general economic interest, demonstrating that its consequences are further reaching than previously considered.

Tricks of the Trade: State Legislative Actions in School Finance Policy That Perpetuate Racial Disparities in the Post‐Brown Era

This article discusses the tricks of the trade that legislatures in formerly de jure segregated states might use to maintain racial funding disparities in existence before Brown and whether such ploys might be vulnerable to legal challenges. The first section provides an overview of modern school finance formulas and explains how legislatures in de jure segregated states might use state aid policies to produce racial funding disparities. The second section, through macrolevel, quantitative analyses, identifies those states where state aid is allocated such that minority populations are disadvantaged and where that disadvantage is subsequently reflected in total state and local revenue. The third section presents in‐depth case analyses of racial disparities in Kansas and Alabama that were identified through macrolevel analyses. The final section analyzes possible legal challenges that plaintiffs in those formerly de jure segregated states identified in our case analyses may bring to racially neutral state ...

EC State Aid Policy with Respect to Soft Budgetary Constraints: Tax and Social Security Contribution Payment Arrears

EC State Aid Policy with Respect to Soft Budgetary Constraints: Tax and Social Security Contribution Payment Arrears

EC State Aid Law and Policy

EC State Aid Law and Policy

The Case of Ryanair - EU State Aid Policy on the Wrong Runway

Summary For the European Commission the case of Ryanair is a precedence decision about the application of state aid policy to agreements between regional airports and airlines. In a long-term contract with the regional airport of Charleroi (near by Brussels), the Irish low-cost airline Ryanair received better conditions than other airlines. In return, it committed itself to transport a certain number of passengers to this airport for a period of fifteen years. This alleviates considerably the entry of the so far non-established Charleroi Airport into the market for international airports. The Commission interprets these better conditions as a discrimination, which distorts competition among airlines. Contrary to that, a thorough economic analysis shows that these conditions must be regarded as a normal form of price differentiation in effective competition. Any airlines would have received similar conditions, if they have offered similar advantages to the airport. Consequently, the decision of the Commission in the Ryanair case is wrong. Additionally, the principles of the Commission, which entail the danger of an allencompassing regulation of prices for airport services, are misleading from an economic point of view, because they tend to impede effective competition in the aviation sector. The real state aid problem is, however, whether and under what conditions the public funding of airports leads to a distortion of competition among airports. This problem remains unsolved. This is also true for the problem of the slot-allocation on airports.

Community state aid policy and energy taxation

Community state aid policy and energy taxation

Economics of European integration

Part 1: History, Facts and Institutions 1. History 2. Facts, Law, Institutions and Budget 3. Decision Making Part II: The Microeconomics of Economic Integration 4. Essential Microeconomics Tools 5. The Essential Economics of Preferential Liberalization 6. Market Size and Scale Effects 7. Growth Effects and Factor Market Integration 8. Economic Integrations, Labour Markets and Migration Part III: EU Micro Policies 9. The Common Agricultural Policy 10. Location Effects, Economic Geography and Regional Policy 11. EU Competition and State Aid Policy 12. EU Trade Policy Part IV: The Macroeconomics of Monetary Integration 13. Essential Macroeconomic Tools 14. Essential Facts of Monetary Integration 15. Optimum Currency Areas Part V: EU Monetary and Fiscal Policies 16. The European Monetary Union 17. Fiscal Policy and the Stability Pact 18. The Financial Markets and the Euro 19. The Eurozone in crisis

Decentralised State Aid Control in an Enlarged European Union: Feasible, Necessary or Both?

The European Union faces a problem of uneven implementation of its rules by national authorities. Agreement on common rules at the Community level does not necessarily translate into commitment by national authorities to apply those rules coherently and effectively. In this context, decentralisation of the existing system of State aid control is hardly considered. The issue, however, is not whether it should be decentralised or not but by how much. Theory and practice suggest that complete decentralisation of State aid control would be a recipe for disaster. On the other hand, as the European Union enlarges, as State aid policy becomes more codified, as State aid concepts become clarified by the courts and as State aid rules are modernised to take into account conditions in local markets, the case for some decentralisation becomes stronger. Some decentralisation will also create incentives for compliance with Community rules and reduction of State aid granted for political gains. This article analyses the various aspects of the problem and proposes a feasible division of tasks between the Commission and national State aid authorities.

Tradable Green Certificates in selected European countries—overview and assessment

Tradable Green Certificates (TGCs) is a new market-based, cost-efficient instrument to regulate the deployment of renewable energy. A European system of TGCs is currently being considered by the European Commission. However, a number of EU countries are either already in the process of designing a system of TGCs or are considering the use of TGCs. Consequently, a European system of TGCs may evolve as a harmonisation of different national systems. We show that due to different political priorities, national systems of TGCs differ on four crucial points. If these points are not harmonised prior to the establishment of a European TGC system, efficiency is unlikely to be obtained. Potential obstacles to the harmonisation of a TGC market will be identified and analysed. Finally, the paper examines the relation between EU's state aid policies and a system of TGCs.

Competition Policy in Subsidies and State Aid

This document (of 193 pages) comprises the proceedings of an OECD roundtable on subsidies, state aid and competition policy, held at the OECD in February 2001. Government assistance to firms can have a substantial impact on competition. Competition policy naturally extends, therefore, to policies designed to control subsidies. But what exactly is a subsidy? Government interventions of all kinds (including interventions through payments, taxes, regulation, deregulation or the provision of public goods) can affect competition between firms. Which of these interventions should count as subsidies? Short of a full cost-benefit analysis is it possible to identify and control harmful subsidies? Different methods for controlling subsidies focus on different ways of slicing this problem. The European Union controls on state aid focus on financial transfers to selected firms in a country. Other approaches are possible. Some countries, following the lead of the EC, are expanding their competition law to include controls on subsidies of various forms. This document consists of a background paper by the Secretariat, submissions from 8 OECD countries and a summary of the oral discussion.

How Adaptable is the European Commission? The Case of State Aid Regulation

With the institutionalization of Europe's single market during the past decade, the Commission of the European Communities has faced dramatic changes in its policy environment. These include the intensified mobilization of firms and business associations that make new demands on Community regulatory regimes, and the accumulation of European Court of Justice decisions that alter the Commission's regulatory latitude. This essay examines developments in Community regulation of government aid to industry to assess how well the Commission has adapted to emerging constraints on its regulatory capacities. The essay finds that the Commission invited representatives of the national governments of EU countries to legislate conditions for applying regulations on government aid to industry in the mid-to-late 1990s - in a policy area in which the Commission in the past guarded its autonomy closely - not due to pressures from national governments, but as a response by the Commission's state aid policy unit to potential constraints on its regulatory capacities.

The Democratic Deficit and European Union Communication Policy

The article evaluates European Union broadcasting policy in the context of the democratic deficit. It argues that it is essential to understand the democratic deficit in terms of communicative action, but this entails the question of media policy and specifically broadcasting, as one of the dominant mediums in which citizens participate in public life. In outlining the basic nature of the European Commission’s approach to broadcasting, the work employs the concepts of internal and external pluralism heuristically. Applying these two categories to the Commission’s decisions on State aid and competition policy, in order to assess how European Union media policy hangs together to form a comprehensive approach to media regulation. It challenges what has become the orthodoxy in reviews of European audio-visual policy and argues that the Commission has adopted a mature sense of the importance of broadcasting in the democratic process. At the same time however, the idea that the democratic deficit can be fruitfully approached through broadcasting initiatives is undermined due to the restricted access the Commission has to the broadcasting sector in the regulatory sphere, where the Member States retain power.

Autonomy by the Rules: The European Commission and the Development of State Aid Policy

The European Commission has enhanced its autonomy to implement state aid policy with a superstructure of frameworks and guidelines constructed on the base of its Treaty‐derived competence. The Commission’s activism has also mobilized private sector actors whose interest in state aid monitoring reinforces the Commission’s claim to being a neutral enforcement agent. However, these constituencies have also made new demands on Commission resources that may constrain the Commission. This finding has important implications for the scope of historical institutionalist analysis, which typically focuses on how Member State governments are constrained by past decisions. Ultimately the autonomy of supranational institutions may be self‐limiting, with emerging constraints deriving not from the preferences of Member State governments, but from the very structuring of the European polity fostered by the autonomous actions of supranational institutions themselves.

The Commission's state aid policy and airline restructuring: a 'one time' opportunity or never-ending story?

The Commission's state aid policy and airline restructuring: a 'one time' opportunity or never-ending story?