Global Journal of Human Social Science, E: Economics, Volume 21 Issue 4

respectively. Nietsche and Heidhues (2006) distinguishes three levels of competition efficiency on welfare levels: - Allocative Efficiency: If MU=MC=P, i.e. the marginal propensity of consumers is equal to the marginal cost of production, which is equal to the market price, the market allocation is efficient. Competition can promote allocative efficiency by reducing the abuse of market dominance (by using excessive prices, P> MC ) by companies and / or by providing insufficient service and/or quality. - Productivity Efficiency: If the company determines the output in the most cost-effective way in addition to the available technological level. Competition strengthens the selection of the most efficiently producing competitors in the market. If market mechanisms are in place, given fixed costs and fixed marginal costs, an increase in the number of enterprises above a certain level will no longer increase competition, will not lead to an improvement in productivity, because the benefits of economies of scale cannot be fully exploited by more enterprises. is present in the market. - Dynamic Efficiency: Competition drives businesses to innovate for the benefit of consumers and society as a whole. When examining the proportionality of the market failure and the aid, Garcia and Neven (2005) argued that a higher amount of aid may be justified if it is proportionate to the size of the market failure to be addressed. This finding is nuanced by Buehler et al. (2007) stating that the aid intensity should be proportionate to the market failure: - In addition to having a less incentive effect on the recipient firm, the low aid intensity also has a welfare-reducing effect due to the marginal cost of public money because it does not address the existing market failure. However, low intensity may also indicate that there is no market failure. - In the event of a serious market failure, high intensity will not have a greater distortive effect on competition because, in the absence of aid, there is little or no competition. However, the situation is more complex and it is not the level of aid intensity that is decisive, but the rate of return of the beneficiary. Compared to a similar investment by a non-aided beneficiary, the higher rate of return of the aided company has a much more distortive effect on the competitor(s). The aid intensity must therefore be negatively correlated with the rate of return on the investment planned by the beneficiary. In addition to the socially desirable maximum welfare, the aid intensities are as follows: � − � ≥ ≥ ℎ − (1) where s is the social rate of return on the investment, i is the aid intensity, r is the financial rate of return on the investment, m is the marginal cost of the aid (m>1) and h is the rate of return expected by the beneficiary. The government 's goal should be to minimize taxpayers' money when transferring it to businesses, so it should aim to be i ≅ h – r . This approach is basically a balance sheet approach meaning that it does not address the potential effects, the utilization of the aid, despite the same methodology, the individual cost and revenue items are not the same when calculating the social and financial return on investment, so comparability is questionable. It could be applied to return on investment, since in the event of a market failure, the rate of return on the beneficiary's equity should be negative in the case of aid and the rate of financial return on investment without aid should be negative. In the case of a service provider, the interpretation of marginal cost may also raise questions. The formula also does not take into account the cost savings resulting from the aid: if the number of employees increases as a result of state aid – assuming that the number of unemployed decreases in parallel – the state's expenditure on the unemployed (annuities or retraining programs) decreases, while the earnings of the employee entering or returning to the labor market increase and part of the earned income is realized in consumption. The purchasing power also increases compared to the initial situation by consuming more and/or at a higher level and/or decides to postpone consumption, i.e. savings. The consumption indirectly increases budget revenues through taxes and contributions, and in the economy it promotes the process of reproduction, economic growth. Thus, for the current budget, the support can be effective in the results approach if the discounted expected budget revenues and cost savings exceed the discounted support as an expense mértékét ( Σ NPV revenues/ Σ NPV grants > 1 ) . � (1 + ) =1 < � + + + + − (1 + ) =1 where A is the amount of aid granted in year i, C is the amount of employer and employee contributions, VAT is the amount of value added tax and excise duties, IT is the amount of personal income tax, CT is the amount of corporate tax, DI is the increase in the amount of disposable income spent minus consumption fixed costs, minus the amount of income intended to be saved and S the expenditures saved on the state unemployment benefit, i.e. cost savings and the discount rate. At the same time, it does not manage the external effects of the aid and does not take into account the transaction costs, ie the additional costs of Volume XXI Issue IV Version I 20 ( E ) Global Journal of Human Social Science - Year 2021 © 2021 Global Journals State Aid in the European Union: Where Law and Economics Meet