State Aid

State aid is any form of financial assistance from the state or public sector, which may take the form of grants, loans, guarantees, tax breaks or other forms of support. The term is also used to refer to any form of advantage given to certain undertakings by virtue of their belonging to a particular group or category.

In general, state aid can be seen as a way for the government to intervene in the economy in order to correct market failures or promote specific economic objectives. It can take many different forms and be directed at various players in the economy, including businesses, households and individuals.

There are a number of different justifications for why state aid may be used. For example, it may be seen as necessary in order to protect jobs and preserve vital industries; it may be used as a tool to promote regional development; or it may be seen as a way to encourage innovation.

However, state aid can also have negative effects. In particular, it can distort competition and lead to inefficient allocation of resources. It can also create moral hazard problems, whereby firms that receive state aid become less risk-averse and more likely to engage in risky behaviour.

For these reasons, the use of state aid is often controversial and subject to strict rules and regulations at both national and EU level.