The Incentive Effect of State Aid: Its Meaning, Measurement, Pitfalls and Application

Abstract

This article examines how the incentive effect of state aid is defined and measured. It also considers how the use of the incentive effect may impact on the behaviour of aid recipients. The availability of state aid would naturally induce them to undertake riskier projects that are not normally included in business plans that tend to be conservative. Therefore, if business plans are the benchmark by which the incentive effect of state aid is established, then this benchmark may be a too easy test of the existence of the incentive effect. The article also argues that the timing of the assessment of the need for state aid has a decisive impact on the determination of whether aid has an incentive effect or not. Lastly, the article examines the Commission Decision on the proposed training aid to DHL and suggests that that aid could have had an incentive effect if it were offered to DHL before it made its decision to establish a logistics centre in Leipzig.