SUBSIDIES, ADDITIONALITY AND FINANCIAL, CONSTRAINTS - A COMMENT ON WREN

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 constraine d, adding a more flexible formulation for the financial constraint tha n the two given in Wren. We use the model to question Wren's view that additionality will be greatest in financially constrained firms. We a rgue that financial constraints potentially restrict leverage and ther efore in important, relevant circumstances, limit the effectiveness of subsidies.