The economic approach to subsidies for foreign airlines

Many air carriers have challenged each other's financing arrangements, each asserting that the other benefits from substantial subsidies. We argue that the ‘subsidy’ classification is a distraction. Firstly, subsidies are quite difficult to define. Secondly, subsidies are little different in their economic effects to many other policy actions, and should be evaluated by policymakers similarly to these other measures. An economic approach would be to assess whether, in overall cost-benefit terms, a country is harmed by subsidies received by another country's airlines. Even if home airlines lose out, home passengers will gain, and the balance will often be positive. The paper outlines the circumstances under which a country would gain or lose from a subsidy to a foreign airline.