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SUBSIDIES, ADDITIONALITY AND FINANCIAL CONSTRAINTS: A COMRIENT ON WREN *
Author(s) -
Holden Darryl R.,
Swales J. K.
Publication year - 1996
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/j.1467-9787.1996.tb01271.x
Subject(s) - additionality , subsidy , leverage (statistics) , constraint (computer aided design) , economics , finance , microeconomics , public economics , business , computer science , market economy , engineering , machine learning , mechanical engineering
. This paper comprises a detailed investigation of the properties of the analytical model introduced in Wren (1994) to evaluate the effect of industrial subsidies on firm employment. We deal specifically with the link between additionality and whether the firm is finance constrained, adding a more flexible formulation for the financial constraint than the two given in Wren. We use the model to question Wren's view that additionality will be greatest in financially constrained firms. We argue that financial constraints potentially restrict leverage and therefore in important, relevant circumstances, limit the effectiveness of subsidies.