Europe’s investment debate tends to ask how much capital can be mobilised and how quickly. Allocation quality also depends on who receives capital and on the spillovers their expansion creates. This column argues that for public allocation, Europe should combine simpler administration with stronger analytical capacity to recognise material anomalies in ordinary administrative information and transmit them early enough for competent authorities to assess and, where warranted, act.
Europe’s investment strategy will require more capital to move, and to move more easily. Whenever capital enables one firm rather than another to expand, the identity of the recipient can matter for the wider market. This column focuses on public allocation, including grants, public contracts, guarantees and other economically valuable public resources. Administrative simplification has economic value. Cintolesi et al. (2026), using Italian firm data and reforms to entry regulation in service sectors, find that reductions in red tape raise labour productivity and firm entry while lowering prices, with most productivity gains occurring within incumbent firms. Kern et al. (2021) find that the Services Directive increased intra-EU trade in the services whose administrative barriers it reduced.
Yet lower friction is not the same thing as productive deployment. Cingano et al. (2025) show that changing the criteria used to rank recipient firms materially changes the cost per additional job within the same investment-subsidy programme. Barrot and Nanda (2020) find that faster payment to government contractors relaxes working-capital constraints and raises employment, but in tight labour markets much of the direct gain is offset by crowding out at untreated firms. Speed can improve delivery without, by itself, determining the social return on deployment.
Spillovers can be positive or negative. Dechezlepretre et al. (2023) find that R&D tax incentives increase innovation not only in recipient firms but also among technologically related firms. Brandão-Marques and Toprak (2024), using firm-level evidence on state aid across several European countries, find that support increases employment and revenues at recipient firms while adverse spillovers on competing firms significantly erode those direct gains. From a social perspective, the economically relevant object is therefore not simply the treatment effect on the beneficiary. It is the marginal social return of allocating scarce capital to one recipient rather than another, including direct effects, positive spillovers and external costs.
For allocation purposes, integrity matters insofar as illicit conduct materially affects a firm’s competitive position, its access to capital or public resources, or the way those resources are used. Di Marzio et al. (2024), using administrative data on the universe of Italian firms, show that tax non-compliance imposes measurable losses on competitors’ revenues and productivity and worsens allocative efficiency. Colonnelli and Prem (2022) show that corruption acts largely as a barrier to entry and as a cost on firms dependent on government relationships. When public support enters such a market, it can do more than finance the intended project: it can reinforce an existing distortion and alter which firms expand.
The risk can also enter public allocation itself. Barone and Narciso (2015) find that mafia presence increases a municipality’s probability of receiving business subsidies and the amount received. Daniele and Dipoppa (2023), using EU co-financed subsidies, identify strategic applications just below the threshold at which anti-mafia screening becomes mandatory. Fontana and d’Agostino (2025) document a parallel pattern in municipal procurement, where contract values bunch below an anti-mafia screening threshold, particularly where infiltration risk is higher, and those contracts are associated with weaker competition. These studies do not establish Europe-wide prevalence. The institutional requirement is not uniform risk across Europe, but a common capability to recognise material integrity risks where they arise.
Removing illicit advantages can also have effects beyond the excluded actor. Slutzky and Zeume (2024) find stronger competition among firms and in public procurement after anti-mafia enforcement. Chircop et al. (2023) find that after criminal firms are removed, peer firms improve performance, increase capital investment and face lower input costs. Fenizia and Saggio (2024) document stronger employment and a higher number of firms after the removal of municipal governments infiltrated by organised crime. Colonnelli and Prem (2022) find that randomised anti-corruption audits increase entry and economic activity in government-dependent sectors. These studies do not estimate the effect of ex ante integrity screening in public investment programmes. They show how weakening illicit or privileged advantages can release economic space and change incentives for firms that were not themselves targeted.
For public investment, the implication is prospective rather than punitive. The state should avoid using support to recreate distortions that enforcement is trying to remove. Where established information provides a lawful basis to prevent access to public support, the allocation system should be able to act. Otherwise, the administration still has an informational role. The aim is to protect the competitive and spillover effects that public investment is intended to create.
Public administrations observe economic activity through a widely distributed network of interactions. Local and sectoral bodies repeatedly encounter the same firms through grants, tenders, licences, concessions, inspections, tax relationships and previous contracts. Each office sees only a fragment, but knowledge need not remain fragmented. The relevant capability is analytical: connecting those fragments well enough to recognise inconsistencies or patterns that would remain invisible within a single transaction.
That capability should complement, not multiply, formal controls. Daniele and Dipoppa (2023) and Fontana and d’Agostino (2025) show why. Actors can adapt around known screening thresholds, so a system may be procedurally complete while missing the pattern that matters. Allocating offices need the analytical capacity to place anomalies observed in ordinary administration in context.
This is not a mandate to investigate firms or to de-risk on the basis of unresolved suspicion. An anomaly is information, not a finding. Where specialist assessment is warranted, the office should preserve the anomaly and its context and transmit it rapidly through a structured channel to the competent authority. For signals concerning possible money laundering or associated predicate offences, national financial intelligence units (FIUs) provide a natural analytical interface. Directive (EU) 2024/1640 provides for FIUs to receive and analyse relevant information submitted by other authorities, disseminate results to competent authorities where grounds for suspicion emerge, and access administrative sources including public-procurement information (European Union 2024b).
Europe already has much of the data infrastructure needed for this model, but the analytical chain remains uneven. Recent European assessments point to under-use of data and fraud-detection tools, as well as continuing constraints in interoperability, expertise and access at regional and local level (European Court of Auditors 2022, 2026, European Commission 2025). The challenge is not simply to collect more data, but to turn distributed observation into shared knowledge, combining the breadth of central systems with the proximity and context of decentralised offices. Stronger analytical capacity and clearer signalling channels can protect public allocation without imposing blanket controls on ordinary recipients.
By 2050, Europe should aim for capital allocation that is low-friction but information-rich. Ordinary offices should be able to recognise material anomalies in what they already observe, while ordinary recipients should not repeatedly prove facts already held by the state.
The revised EU Financial Regulation provides useful components through interoperable recipient data, beneficial-ownership information, risk scoring and the Early Detection and Exclusion System (European Union 2024a). These tools are no substitute for analytical judgement. The task is to make this potential operational through stronger analytical capacity in public administration and secure, standardised channels for timely specialist assessment and, where warranted, enforcement.
A euro allocated to one firm can change the market around it. For public authorities, the ability to turn distributed observation into coherent knowledge and timely signals should therefore be treated as part of Europe’s investment infrastructure.
Source : VOXeu
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