Raffaele Spallone, Andrea Filippetti e Fabrizio Tuzi - Can state aid policy conflict with regional economic convergence? Evidence across the Italian regions
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.
