A Sectoral Approach to the Politics of State Aid in the European Union: an Analysis of the European Automotive Industry
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A Sectoral Approach to the Politics of State Aid in the European Union: an Analysis of the European Automotive Industry Marco Schito1 Received: 14 February 2020 / Revised: 18 August 2020 / Accepted: 21 August 2020 / © Springer Science+Business Media, LLC, part of Springer Nature 2020
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 macroanalyses 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. Keywords State aid · Automotive industry · Electoral politics · Sectoral analysis · Zero-inflated models JEL Classification H2 · L5 · L62 · P16
1 Introduction Government support to business through selective subsidisation is historically common practice. It allows governments to encourage economic activity in a region, slow the rate Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10842-020-00348-y) contains supplementary material, which is available to authorized users. Marco Schito
[email protected] 1
Department of Political Science, Trinity College Dublin, 2 College Green, Dublin 2, Ireland
Journal of Industry, Competition & Trade
of decline of an industry, maintain the incomes of producers, correct market failures, or enhance employment (OECD 2001, p. 7). In the European Union (EU), subsidy spending is commonly known as state aid, the control of which is pivotal to the correct functioning of the Single Market. For this reason, past studies have explored different facets of state aid politics to understand why some countries support business more than others, or why under certain circumstances state aid is warranted. These studies usually analyse spending as a whole, without differentiating between the different sectors of the economy. However, a disaggregated view of the state and the economy that looks at its individual sectors may be necessary to better understand state-society relations (see Atkinson and Coleman
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