Modules 4 and 5 were concerned with the interface between companies and government made necessary by the government's desire to influence companies' investment, pricing and output policies by law. The main reason for doing so is the desire to promote efficiency by removing ‘market failure’ (see Section 3.3). Module 6 considers the impact of another method of influencing companies which has a wider range of aims in view – the use of various financial inducements such as grants, tax privileges and loans at subsidised rates of interest.
The aims of this module are as follows:
To analyse the reasons for offering financial inducements to companies.
To classify the various forms of inducements offered.
To review the economist's approach to the analysis of the effects of such inducements.
To use our economic analysis to throw light on problems encountered in matching policy aims and methods with the strategies adopted by companies as receivers of such inducements.
Perspective may be gained by examining the total volume of aid of all forms given to companies in the EC as shown in Table 6.1.
Readers can test their prowess at identifying ways of clarifying the economic importance of aid in the review questions accompanying this module.
| Country | Total as % of Government expenditure | ||
| 1994–96 | 1996–98 | ||
| Belgium | 2.33 | 2.26 | |
| Denmark | 1.60 | 1.59 | |
| Germany | 3.97 | 3.95 | |
| Greece | 2.38 | 2.25 | |
| France | 2.02 | 2.08 | |
| Ireland | 2.12 | 2.66 | |
| Italy | 3.38 | 3.04 | |
| Netherlands | 1.23 | 1.24 | |
| UK | 1.17 | 1.20 | |
Note: Totals include both national state aid and EC aid.
Source: European Commission (2000).
It is important to note that whilst the analysis concentrates on national policies and companies' reactions to them, companies in the EC receive a considerable proportion of their aid from the Community Budget and price support schemes. The complications introduced by the international aspects of aid and EC policy are considered in Section 6.5 below.
