Financial Subsidies and Bank Lending: Substitutes or Complements? Micro Level Evidence from Italy
41 Pages Posted: 14 May 2011
Date Written: April 10, 2011
Abstract
We exploit Italian Central Credit Register data to investigate the effectiveness of subsidized credit programs for public financing to firms via the banking system. The effect of public incentives depends on the availability of financial resources for the beneficiary firms. Financially constrained firms are likely to use the subsidies to expand output, while less constrained firms will, at least partly, use the funds to replace more costly resources. Focusing on the relationship between bank credit and subsidized loans, we find that larger firms substitute public financing for bank lending, while there is not such evidence for smaller firms. The estimated degree of substitution is substantial, ranging from an estimated 70 percent to 84 percent.
Keywords: financial subsidies, credit constraints, banking
JEL Classification: G2, H2, O16
Suggested Citation: Suggested Citation
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