Orchestrating economic transformation: Supra-national guidance and member state subsidy provision in the Single Market
Working Paper
Abstract: Europe faces a competition crisis, as the imperative to digitize and decarbonize its economy coincides with growing geopolitical pressures amid the rise of industrial policy. Subsidies, while helping struggling businesses, present a threat to market cohesion that the European Commission (EC) must navigate. We study this governance trade-off between competitiveness and cohesion in the context of the Recovery and Resilience Facility (RRF), the EU recovery package to the COVID-19 pandemic. Given the RRF’s design featuring indirect control and ex post verification, we conceptualize the EC as an orchestrator seeking to facilitate the green and digital transitions, while maintaining market integrity. Using roughly 15 years of sector-level subsidy data for all Member States in a difference-in-differences framework, we examine the effect of the RRF on business assistance. We find increased subsidy provision by Member States to green and digital sectors, those prioritized by the RRF, and mixed effects on market cohesion.
Recommended citation: Invernizzi, Alessia and Ryan Pike. (2025). Orchestrating economic transformation: Supra-national guidance and member state subsidy provision in the Single Market. Working Paper.