Regional Community Policy: Does Aid Received from the EU Displace Funding by Member States?

Abstract

The implementation of the EU regional policy has been characterized by the establishment of multian¬nual public investment programs in the Member States that are co-financed by the EU through mat¬ching grants. According to the additionality principle, governments receiving aid should increase their financial efforts in relation to the pre-existing situation. Using data on the implementation of regional policy, this paper has two aims: to verify whether Community aid displaces local funds for public in¬vestment, and to uncover whether there is endogenous behaviour regarding Community aid as a result of local political processes. We have obtained evidence that funding from the EU crowd-out local fi¬nancing of public investment. On the other hand, although there is some evidence of an endogenous behaviour of Community aid, we find that this endogeneity is not statistically significant.