In the absence of any control at Community level, individual European States might grant large amounts of economically inefficient aid to businesses. This results from the weight of special interests and short-term preoccupations in domestic policymaking, as well as from the presence of negative cross-country externalities. Addressing various justifications for a European-wide State aid control policy allows us to shed light on the flaws of two often discussed assessment criteria. Prohibiting aid only if it induces a negative net external effect, or if it causes consumer surplus to fall, would lead to an overly lax policy. A criterion based on the joint surplus of consumers and taxpayers appears to be more appropriate.
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