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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Notes
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One exception is Rickard’s (2018) study on agriculture, fishing and manufacturing in Norway. Here, too, however, the sectors are rather widely defined. Park and Jensen (2007) and Zahariadis (2008) also focus on agricultural subsidies, but these may be ‘special’ cases due to their high level of organisation, homogeneity in interests and other external policies such as the European CAP (Community Agricultural Policy).
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See http://ec.europa.eu/competition/mergers/cases/index/nace_all.html for a full list.
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Deal No. 1601416344 in the Zephyr database: see https://zephyr.bvdinfo.com. Daimler divested its Chrysler assets in 2007 for €6.74bn via an institutional buyout: see Deal No. 517310.
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Deal No. 1909542683 in the Zephyr database.
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Deal No. 69497 in the Zephyr database. Renault increased its ownership of Dacia to 93% in 2001 and attained full ownership by 2004 (see Chari (2015), p. 118).
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Deal No. 446877 in the Zephyr database. As of December 2018, Renault has a 100% stake in AvtoVAZ (see Deal No. 1941197083).
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OJ C 123 of 18 May 1989.
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OJ C 279 of 15 September 1997.
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OJ C 368 of 22 December 2001.
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OJ C 70 of 19 March 2002.
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OJ C 54 of 4 March 2006 and OJ C 209 of 23 July 2013.
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OJ C 83 of 7 April 2009.
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Common-pool problems increase as the number of policy-makers increases, but diminish when some of these actors are more encompassing, as they can better internalise the costs (Bawn and Rosenbluth 2006). Common pools are less problematic in a situation where three policy-makers represent 49%, 49% and 2% of the total, than in one in which each is 33%. In the first case, the third actor is less problematic because she will get less credit (blame), so the effective number of actors is two.
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http://ec.europa.eu/competition/publications/annual_report/. Crisis aid, such as that given under the Temporary Framework, is excluded from the analysis.
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In the latter case, the Commission registers Volkswagen as the beneficiary.
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‘Need for wage and tax policies to induce enterprise; encouragement to start enterprises; need for financial and other incentives such as subsidies.’
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Independents were scored 0. This also reflects the idea exposed by Franzese (2010, pp. 350-352) that the resulting policy from a set of policy-makers with different preferences will be a convex combination, or weighted average, thereof. Some may argue that portfolio allocation in coalition governments may be important in this respect. Common sense suggests that the preferences of the Minister of Industry in matters of state aid must weigh more than those of the Minister of Education, if the two belong to different parties. However, I do not differentiate portfolio allocations for two reasons. First is analytical simplicity. In many cases, subsidies reflect the overall government strategy rather than the individual ministries’, and distinguishing portfolio allocations would needlessly complicate the model. Secondly, empirical evidence found that correlation between portfolio preferences and cabinet posts is rather weak and that the theoretical assumptions about the importance of portfolio allocation on policy output are not convincing (for a review, see Hartmann 2014, pp. 94-99).
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0 is for caretaker governments (e.g. Czechia under Jan Fischer). The formula for effective number of parties (ENP) in government is calculated following Laakso and Taagepera (1979): \(\text {ENP} = \frac {1}{{\sum }_{i=1}^{n} {p}_{i}^{2}}\) where n is the number of parties with at least one seat and \({p}_{i}^{2}\) is the square of each party’s proportion of all seats. Thus, if there are three parties with 50%, 40% and 10% of the seats in the cabinet, the resulting ENP is \(\frac {1}{0.5^{2}+0.4^{2}+0.1^{2}} = 2.38\), which is then approximated to 2.
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The Left-Right index is explained in Jahn (2011a).
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Portugal, a semi-Presidential unicameral system, presents a more complicated example. In 2002, in Portugal, there was also a coalition government. Thus, there are two relevant actors: the President and the coalition partner. However, since the absorption rule states that any veto player situated within the unanimity core of any set of veto players has no effect on policy stability (Tsebelis 2002), then the range must be calculated by measuring the most extreme positions of two of the three actors (the President and the two most extreme coalition partners) on the Left-Right spectrum. The ideological position of one of the coalition partners (2.53) falls between the most extreme values given by the President (1.73) and the other extreme coalition partner (3.38). Hence, the ideological range is calculated by subtracting the position of the President from that of the more extreme coalition partners.
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Additional regression analyses that condition District Magnitude on each individual indicator are in line with the theory.
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Franchino and Mainenti (2013) find evidence that when the three of them are low, governments have fewer incentives to engage in particularistic spending, but not the contrary.
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\(\text {Timing } = \frac {M + (D/30)}{12}\), where M = pre-election months and D = pre-election days.
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EUKLEMS, which provides data for this variable, only records data from 1995 for many member states. This is due to the different classification codes that national account statistics used before then, creating a methodological break. However, EUKLEMS also provides back-cast estimates of ISIC Rev. 4 industries, based on growth rates of ISIC Rev. 3 industries, which allow for a 1:1 comparability with NACE Rev. 2. I would like to thank Monika Schwarzhappel for raising this issue.
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I follow Nicolini et al. (2017) in their definition of a national champion as a historical brand (e.g. also Opel in Germany). Additional analyses only including Volksvagen, PSA/Renault and Fiat as national champions do not change the results.
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Country and year dummy variables cannot be included in both parts of the equation, since this will prevent model convergence.
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It should be noted that by ‘legislators’ I mean parliamentarians sitting either in the lower or upper house.
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The Netherlands is excluded for graphical reasons (District Magnitude = 150).
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The number of observations in the PPML models is lower because the estimator automatically deletes problematic observations that prevent convergence. See Correia et al. (2020).
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By ‘political constituency’ I mean the grouping of voters that belong to or voted for a particular party. This is different from the typical understanding of constituency, which is a geographic electoral reality, as it is used elsewhere in the article.
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However, one should also be wary of direct state aid comparisons before and after 2012, as the SAM changed some of the guidelines regarding categorisation of aid.
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Acknowledgments
I would like to thank Luca Bellodi, Raj Chari, Michele Crepaz, Mattia Guidi, Eleonora La Spada and Giulia Saydon, as well as two anonymous reviewers and the editors of the journal for invaluable comments and suggestions. A previous version of the article was presented to the 2019 SISP Conference in Lecce, Italy. I also acknowledge the support of the Irish Research Council, which funded this project.
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Schito, M. A Sectoral Approach to the Politics of State Aid in the European Union: an Analysis of the European Automotive Industry. J Ind Compet Trade 21, 1–31 (2021). https://doi.org/10.1007/s10842-020-00348-y
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DOI: https://doi.org/10.1007/s10842-020-00348-y