Grants versus Financial Instruments: Which Offer Stronger Incentives to Aid Recipients?

Author: Nicolaides Phedon  

Publisher: Lexxion Verlagsgesellschaft mbH

E-ISSN: 2196-825x|4|2|68-72

ISSN: 2196-8268

Source: European Structural and Investment Funds Journal (EStIF), Vol.4, Iss.2, 2016-09, pp. : 68-72

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Abstract

This article asks whether financial instruments provide stronger incentives to their recipients than grants. It finds that aid recipients in fact have a stronger incentive to work harder to make a grant-aided project successful. By contrast, aid-granting authorities should prefer financial instruments over grants because repayable public funding results in smaller outlays from public budgets. The article concludes that different forms of public support should be granted in different situations: grants for non-commercial projects, repayable advances for risky projects and financial instruments for projects which in principle are financially viable.