Subsidies as a means to solve market failure: Lessons for China from EU State aid policy
This paper discusses the role of subsidies in correcting market failures from the perspective of EU State aid policy. In recent years, one can notice a clear shift towards a 'more economic approach’ and a stronger focus on efficiency by the European Commission. However, this stronger focus on efficiency with regard to a politically sensitive area such as State aid is not self-evident, and also raises the question why other jurisdictions do not have a similar control on market intervention by States (US) or provinces (China). It also raises the question whether controlling the efficiency of government spending should be a task of the EU rathert han Member States. The aim of this paper is therefore to critically assess the changing goals of EU State aid policy, from market integration and equity to efficiency and fiscal discipline. Possible implications for China, in the form of a stricter control on subsidies,are also discussed.