Grants vs . investment subsidies

In many countries, governments face policy decisions about how to help poor people who have difficulty helping themselves because they can’t borrow money. What is the proper form of intervention? What role is it best for the government to fulfill? Should the government just give poor people money, in the form of a grant? Or should it offer investment subsidies to spur productivity? Two researchers, Ashok S. Rai, of the Center for International Development at Harvard University, and Thomas Sjöström, from the Department of Economics at Pennsylvania State University, investigated the question. What they discovered is that a government should do both simultaneously, because it’s the most efficient policy. As they write, “Everybody will take the grant and only the relatively productive will take the subsidy.”