Within the European Union all policies should be modulated to take into account cohesion, including competition policies. We investigate the presence of a conflict between competition policy, State Aid, and the objective of cohesion policy focusing on differences between Northern and Southern regions in Italy in 1999-2016. We find that: i. state aid has followed an anticyclical pattern in the North regions and a cyclical pattern in the South; ii. in the South that trend has been reinforced by a demand effect, proxied by private investment. The results are consistent with the presence of a conflict between the overarching objective of regional economic convergence and competition policy, due to the presence of a deep pocket distortion and a lack of compensation from the central government. This has several implications for policy, including a trade-off between European cohesion policy and competition policy for the least developed regions.

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