STATE AID GIVEN BY THE LOCAL GOVERNMENT

Abstract

One of the main principles of the local government is the principle of subsidiary, i.e. effective governance nearer the people. The local 
authorities governed by this principle may give aid to some enterprises that are in difficulty by giving them subsidies, because it deems these enterprises important for the development of the region, or because they may concern a R&D project. The local authorities may 
finance an enterprise or undertaking that is engaged in cultural activities, or in the conservation of regional or national heritage. There are also special situations like for example the cases of a natural disaster or of an exceptional occurrence that may entice the local authority to intervene, for example: in the case of droughts in the region the local government may give to the damaged farmers subsidies, or may exclude these farmers from certain categories of taxes.  On the other hand the aid given by the local government may distort competition between undertakings and businesses, by favoring a selected undertaking or business in comparison to others.  The aid given by the local authorities may affect also trade by increasing the production of certain products, namely those produced by the undertaking recipient of the aid, to the detriment of others. Local government intervention may influence the way in which markets operate, which would mine the free trade principle by being the local government who is “picking the winners”. Theaim of this paper is to show out some general guidelines to find equilibrium between the local government intervention in the businesses of the region it operates and state aid rules.