Why State Subsidies? Evidence from European Community Countries, 1981-1986

In this article I seek to explain why European Community members subsidized a substantial portion of their economies in the period 1981–1986. I test three competing explanations: socioeconomic, party control, and world markets. Parties have an impact on overall state subsidies and loans, but trade deficits are most influential in the disbursement of direct budget outlays and tax incentives. Unemployment has no effect on subsidies. The differential responsiveness to trade and parties is likely to frustrate efforts toward greater European integration.