Second Pan - European Conference Standing Group on EU Politics

Subsidies have become increasingly important tools of industrial policy due to the gradual liberalization of trade and finance since the 1960s. Still, there is considerable variation in subsidy levels in industrialized countries. In this paper, I seek to explain the variation in the levels of industrial subsidies among OECD countries in the period 1989-1995. I test the impact of both domestic political and economic factors and international constraints on the level of subsidies. The results indicate that higher unemployment leads to higher levels of subsidies, while increased exposure to international trade and EU membership is associated with lower levels of subsidies. Contrary to theoretical expectations, leftist governments and upcoming elections are associated with lower levels of subsidies.