State aid and investment: Case of Slovakia

Abstract

State investment incentives are detrimental to the quality of the business environment and create unequal starting conditions for entrepreneurs to implement investment plans. In some cases, however, it is necessary to regulate the allocation of inward investment to regions within one country and thus decrease the disparities. Investment incentives are instruments that in general might violate market principles and thus are regulated within the EU internal market. Despite being aware of this fact most economists and politicians advocate these kinds of measures as necessary and relatively cheap in order to push the economy forward or win international big private equity investments. Investment aid is regional aid to stimulate investment in disadvantaged regions and to create new jobs in the Slovak Republic. Beneficiaries of this assistance may be natural and legal persons authorized to carry on business in the territory of the Slovak Republic and whose investment activities and projects meet the conditions of Act no. 561/2007 Z.z. on Investment Assistance and on Amendments to Certain Acts. This paper will focus on how investment incentive attracts foreign investment in the Slovak Republic and based on the data from 2002 to 2017 we will analyze their effectiveness on the created jobs. Despite the possible support from the Slovak government not all foreign investors areapplying for investment incentives, either are in contact with the government during their investment phase.