Dr. Holden et Jk. Swales, SUBSIDIES, ADDITIONALITY AND FINANCIAL, CONSTRAINTS - A COMMENT ON WREN, Journal of regional science, 36(2), 1996, pp. 303-310
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.