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State aid to investment and R&D - David R Collie

David R Collie (Cardiff Business School, Cardiff University)

State aid to investment and R&D - David R Colliepdf(429 kB) Choose translations of the previous link 

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.

(European Economy. Economic Papers. 231. July 2005. Brussels. 14pp. Tab. Free.)

KC-AI-05-231-EN-C (online)
ISBN 92-894-8870-0 (online)
ISSN 1725-3187

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