Do small public grants boost tourism firms’ performance?

Abstract

This study provides new evidence on the impact of tourism grants for service-standard improvement on tourism firm performance. Small matching grants provided to firms in two economically different regions are considered. We study additionality caused by the grants in the performance indicators of firms while taking into account regional heterogeneity and differing tourism demand. In the context of tourism firms in Croatia, we estimate the causal effect via a matching difference-in-differences estimator. We find a positive effect on tourism firm sales, value-added, capital, and labor in the region with higher tourism demand but not in the one with lower tourism demand. A cost–benefit analysis suggests that, in more developed regions, the benefits of the grant scheme for tourism outweigh the grant’s direct costs.