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Incentive Effect: Is State Aid Necessary when Investment Is Unnecessary?

Phedon Nicolaides


I. Introduction State aid is in principle prohibited by Article 87(1) EC for being incompatible with the common market because it distorts competition. This prohibition is not absolute. State aid may be exempted when it is capable of leading recipient undertakings to do something they would not normally do under conditions of free competition. In this way, undertakings can be induced to change their practices so that they facilitate the achievement of


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