What Determines the Specificity of Subsidies?

Authors


  • Author’s notes: Earlier versions of this paper were presented at the 2006 annual meeting of American Political Science Association, the 2007 annual meeting of Midwest Political Science Association, and Political Institutions Workshop in Harris School of Public Policy at the University of Chicago. I appreciate comments from John Balz, Christina Davis, Rob Franzese Jr., Nathan Jensen, Cheol-Sung Lee, Sebastian Schmit, Alberto Simpser, two anonymous reviewers, and participants of the above-mentioned panels. The usual disclaimer applies. The author acknowledges financial support from Division of the Social Sciences, the University of Chicago. The replication data set is available from the ISQ data archive or from the author’s Web site (http://home.uchicago.edu/~jhp/research).

Abstract

Park, Jong Hee. (2012) What Determines the Specificity of Subsidies? International Studies Quarterly, doi: 10.1111/j.1468-2478.2012.00728.x
© 2012 International Studies Association

As countries increasingly protect their domestic industries by government subsidies, specific subsidies—subsidies that target specific industries or firms—have received increasing international attention due to their negative externality in international trade. In this paper, I argue that variations in domestic institutional arrangements can explain the cross-national variation in subsidy specificity. First, I theorize that the size of specific subsidies has an inverted U-shaped relationship with the level of centralization of economic interests, while the size of general subsidies monotonically increases with the level of centralization of economic interests. Then, I expect the supply-side factors such as electoral institutions and government partisanship to interact with the effects of centralization in determining the amount of specific or general subsidies in a country. Using the state aid data set of the European Union between 1992 and 2004, I find that the amount of sectoral aid—state aid targeted at specific industries or firms—is larger in countries where labor and business interests are organized at the industry level than in countries with decentralized or highly centralized industrial relations. The size of state aid targeting a wide range of economic sectors increases as the centralization of labor and business interests increases.

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