Author (Corporate) | European Commission: DG Economic and Financial Affairs |
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Series Title | European Economy: Economic Papers |
Series Details | No.231, July 2005 |
Publication Date | July 2005 |
ISBN | 92-894-8870-0 |
ISSN | 1725-3187 |
EC | KC-AI-05-231-EN-C |
Content Type | Journal | Series | Blog, Report |
The prohibition of state aid to investment and R&D in an integrated market such as the European Community is analysed in a Cournot oligopoly model where firms undertake investment or R&D to reduce their costs. Both strategic and non-strategic investment and R&D are considered. Governments in the Member States give subsidies for investment and R&D, which are financed by distortionary taxation so the opportunity cost of government revenue exceeds unity. Prohibiting state aid to investment will always increase aggregate welfare. Prohibiting state aid to R&D will always increase aggregate welfare if spillovers from R&D are small. If spillovers from R&D are moderate then there exists a range of values for opportunity cost where governments give state aid and where the prohibition of state aid will increase aggregate welfare. Prohibiting state aid to R&D will reduce aggregate welfare if spillovers from R&D are large. |
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Source Link | Link to Main Source http://ec.europa.eu/economy_finance/publications/publication_summary622_en.htm |
Countries / Regions | Europe |