Supporting investments at regional level: useful or necessary bad?
Keywords:
state aid, regional investment aid, aid scheme, impact assessmentAbstract
According to Article 107(1) of the Treaty on the Functioning of the EU granting state aid is normally prohibited unless it is justified by reasons of general economic development when it can be regarded compatible with the internal market. Within the frame of the microeconomic analysis I examined the impact of State aid at firm level through an existing aid programme in Hungary. The so called ’Investment Subsidies Granted by In dividual Government Decision’ is one of the largest and most important State aid scheme in Hungary as regards both in absolute (volume of aid amounts) and relative (within the different aid categories) terms. The scheme is financed from the central budget with the objective to promote regional investments especially of multi- and transnational companies. By measuring the average effect of State aid actually paid out on the firms’ turnover and average number of employees between 2005 and 2014 I found empirical evidence of positive and significant effect of subsidies on the turnover but not on the employment. The main conclusion is that besides the fact that a firm can reduce its eligible investment costs it can also raise its annual turnover due to the aid. Nevertheless, the results have to be tackled carefully and with limitations because other subsidies were not filtered out from the patterns and therefore it can not be excluded that the given results could partly lead to biases.
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