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| Author: | Collie, D.R. |
| Title: | State aid in the European Union: The prohibition of subsidies in an integrated market |
| Journal: | International Journal of Industrial Organization
2000 : AUG, VOL. 18:6, p. 867-884 |
| Index terms: | Subsidies Oligopoly Taxation Single market European Union Models |
| Freeterms: | Foreign aid |
| Language: | eng |
| Abstract: | The effect of prohibiting state aid in an integrated market is analyzed in symmetric Cournot oligopoly model where one firm is located in each member state. Subsidies are financed by distortionary taxation so there is a trade-off btw. the deadweight loss from the oligopolistic distortion and that from distortionary taxation. It is shown that there exists a range of values for the opportunity cost of government revenue where member states want to give subsidies and where the multilateral prohibition of subsidies would increase aggregate welfare. Moreover, this range of values is shown to include plausible estimates of opportunity cost. |
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