An Assessment of Regional State AidAn Assessment of Regional State Aid

Prof. P. NicolaidesEuropean Institute of Public Administration

Maastricht, The Netherlands

Three themes

• Distribution of regional aid

• Effectiveness of regional aid

• Policy implications in view of the forthcoming

reform

How much state aid?

Total state aid (2001) € 86 bnAgriculture & fisheries € 13 bnTransport € 39 bnCoal € 6 bnManufacturing € 21 bnServices [tourism, financial, media] € 3 bnEmployment/training € 3 bn

Total state aid (2001) € 86 bnAgriculture & fisheries € 13 bnTransport € 39 bnCoal € 6 bnManufacturing € 21 bnServices [tourism, financial, media] € 3 bnEmployment/training € 3 bn

Total state aid (2001) € 86 bnAgriculture & fisheries € 13 bnTransport € 39 bnOther sectors € 10 bnHorizontal objectives € 24 bn

Total state aid (2001) € 86 bnAgriculture & fisheries € 13 bnTransport € 39 bnOther sectors € 10 bnHorizontal objectives € 24 bn

How much regional aid?

Total aid to “a” regions (2001): € 8 bn [25% of aid other than agric. & transp. or 33% of horizontal aid] D & I account for 50% of regional aid to “a” regions

How is regional state aid distributed? - time series

Hypothesis: aid granted to reduce regional disparities=> so it is distributed according to “need” [income disparity] Dt+1 = a + bSt + e [D: income disparities; S: state aid]

Test results: sign of independent variable (* = significant)[aid as % of GDP / aid per capita; per country during 1990-2000]

Reg Hor Ag/Tr TotalBelgium +/+ -/- (*) -/+ -/- (*)France -/- +/+ +/+ +/+Germany +/+ -/- +/+ +/+Greece +/+ -/- (*) +/+ -/- (*)Italy -/- -/- -/- -/-Netherlands -/- -/- (*) +/+ -/-Portugal -/- -/+ -/+ +/+Spain +/+ +/+ -/- (*) -/-UK -/- -/- +/+ +/+

How is regional state aid distributed? - cross section

Type of state aid 2000 1999Regional -/- -/-Horizontal +/+ +/+Agric. & Transp. +/+ +/+Total +/- +/+

Test results: sign of independent variable[aid as % of GDP / aid per capita; across EU, 1999 & 2000]

Italy: Aid to Business

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Business Aid as % of Regional GDP

2000 2001 GDP

Italy: Aid to Business

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Business Aid as % of Regional GDP

2000 2001 GDP

I

Spain: Regional Aid

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Regional Aid as % of Regional GDP

2001 2002 GDP

Spain: Regional Aid

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Regional Aid as % of Regional GDP

2001 2002 GDP

E UK: Regional Selective Assistance & Enterprice Grants (GBP, mil; Apr 2001 - March 2002)

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

1 2 3 4 5 6 7 8 9 10 11

Regional Aid as % of Regional GDP

% Aid GDP

UK: Regional Selective Assistance & Enterprice Grants (GBP, mil; Apr 2001 - March 2002)

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

1 2 3 4 5 6 7 8 9 10 11

Regional Aid as % of Regional GDP

% Aid GDP

Member State experience: More resources for poor regions?Yes, but how about within poor regions & over time?

UK

Similar situation in other Member StatesFinland: Regional Distrubution of State Aid

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1 2 3 4 5

Total Aid as % of Regional GDP

% Aid GDP

Finland: Regional Distrubution of State Aid

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1 2 3 4 5

Total Aid as % of Regional GDP

% Aid GDP

France: Regional Distrubution of State Aid

0

1

2

3

4

5

6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

State Aid per Head (euros)

1995-1998 1999-2002 GDP

France: Regional Distrubution of State Aid

0

1

2

3

4

5

6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

State Aid per Head (euros)

1995-1998 1999-2002 GDP

Greece: Aid to investment and regional development

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1 2 3 4 5 6 7 8 9 10 11 12 13

State Aid as % of Regional GDP

2000 2001 GDP

Greece: Aid to investment and regional development

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1 2 3 4 5 6 7 8 9 10 11 12 13

State Aid as % of Regional GDP

2000 2001 GDP

Ireland: Incentive Schemes (grants & equity)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1 2

Grants & Equity as % of Regional GDP

2000 2001 GDP

Ireland: Incentive Schemes (grants & equity)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1 2

Grants & Equity as % of Regional GDP

2000 2001 GDP

FIN F

GR IRL

Austria Federal State Aid

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

1 2 3 4 5 6 7 8 9

Regional Aid as % of Regional GDP

2000 2001 GDP

Austria Federal State Aid

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

1 2 3 4 5 6 7 8 9

Regional Aid as % of Regional GDP

2000 2001 GDP

Austria Federal State Aid

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

1 2 3 4 5 6 7 8 9

Total Aid as % of Regional GDP

2000 2001 GDP

Austria Federal State Aid

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

1 2 3 4 5 6 7 8 9

Total Aid as % of Regional GDP

2000 2001 GDP

Multiple schemes & funding authorities complicate picture (Austria)

Austria Länder State Aid

0

0.5

1

1.5

2

2.5

3

3.5

1 2 3 4 5 6 7 8 9

Total Aid as % of Regional GDP

2000 2001 GDP

Austria Länder State Aid

0

0.5

1

1.5

2

2.5

3

3.5

1 2 3 4 5 6 7 8 9

Total Aid as % of Regional GDP

2000 2001 GDP

Austria (Federal & Länder State Aid)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1 2 3 4 5 6 7 8 9

Total State Aid as % of Regional GDP

2000 2001 GDP

Austria (Federal & Länder State Aid)

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1 2 3 4 5 6 7 8 9

Total State Aid as % of Regional GDP

2000 2001 GDP

Is aid effective? (total aid)

state aid and cohesion

-8

-6

-4

-2

0

2

4

6

8

10

UK NL E EL F P B D I

member states

perc

enta

ge

Change in disparities Total State Aid/GDP

state aid and cohesion

-8

-6

-4

-2

0

2

4

6

8

10

UK NL E EL F P B D I

member states

perc

enta

ge

Change in disparities Total State Aid/GDP

State aid as % of GDP (1995-97)v

% change in regional income disparities (1998-00/1995-97)

Cont. (agriculture & transport aid)

state aid and cohesion

-8

-6

-4

-2

0

2

4

6

8

10

UK P E D EL I F NL B

member state

%

change in disparities agricultural aid/GDP

state aid and cohesion

-8

-6

-4

-2

0

2

4

6

8

10

UK P E D EL I F NL B

member state

%

change in disparities agricultural aid/GDP

Cont. (horizontal aid)

state aid and cohesion

-8

-6

-4

-2

0

2

4

6

8

10

EL NL UK F B D E I P

member state

%

change in disparities horizontal aid/GDP

state aid and cohesion

-8

-6

-4

-2

0

2

4

6

8

10

EL NL UK F B D E I P

member state

%

change in disparities horizontal aid/GDP

Cont. (regional aid)

state aid and cohesion

-8

-6

-4

-2

0

2

4

6

8

10

NL E P UK F B I D EL

member state

%

changes in disparities regional state aid/GDP

state aid and cohesion

-8

-6

-4

-2

0

2

4

6

8

10

NL E P UK F B I D EL

member state

%

changes in disparities regional state aid/GDP

Policy implications

Statistical evidence• There appears to be no systematic correlation between state aid

and regional disparities• State aid is unevenly distributed across regions and over time• Regional aid is not proportionally granted to most needy

regions

Statistical evidence• There appears to be no systematic correlation between state aid

and regional disparities• State aid is unevenly distributed across regions and over time• Regional aid is not proportionally granted to most needy

regions

Impact of enlargement• Average EU per capita income to decline by about 10% points• About 20-30 million of EU15 population lose 87(3)(a) status

Impact of enlargement• Average EU per capita income to decline by about 10% points• About 20-30 million of EU15 population lose 87(3)(a) status

Policy implications• Aid should be concentrated• Enlargement offers «politically convenient» opportunity to

carry out reform

Policy implications• Aid should be concentrated• Enlargement offers «politically convenient» opportunity to

carry out reform

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