| Publication |
2012.
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| Summary/Abstract |
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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