Are Subsidies Really Needed? The Case Of EU Regional Policy In The Czech And Slovak Republics

Regional policy is one of the most important EU policies. Large amounts of resources used for support programmes automatically put forward the question of their effectiveness and efficiency. These aspects can be examined both from macro and micro perspectives. In this article we focus on one aspect of inefficiency – "deadweight". This effect occurs if public subsidy is spent on activities that would have happened even without these resources. We examine the effect on selected projects for small and medium-sized enterprises in the Czech and Slovak Republics. The article consists of four parts. First we discuss theoretical background for using the subsidies as development tool. Then we look more closely on the definition of deadweight effect and previous studies analyzing it. In the methodology part we discuss different approaches how to measure this effect and introduce methodology in our research. We also discuss potential problems with interpretation of the results and in the final part we present the results of our research and some policy implications. We found out that the deadweight effect is quite substantial and represents more than 35 % of public subsidies. The project characteristics itself (type of project, amount of budget) has the highest significance for the deadweight effect. The deadweight effect is higher for investments projects compared to the support of education or employment. The probability of the deadweight effect is also decreasing with the total amount of subsidies.