Subsidies for Job Creation: Is Small Best?

Wisdom has it that direct financial assistance to small firms for employment creation may be poor use of resources since these firms have high failure rates. In this paper we identify another feature which works in the other direction, which suggests that small firms will be more responsive to assistance. This is related to these firms relatively poor access to private funds. Recent evidence is reported suggesting that proportionate grant assistance is more effective in small firms, but only in those firms which are new or relatively young. Explanations of this are considered related both to the cost of funds and to other factors.