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

Carmignani, Amanda and D'Ignazio, Alessio, Financial Subsidies and Bank Lending: Substitutes or Complements? Micro Level Evidence from Italy (April 10, 2011). Bank of Italy Temi di Discussione (Working Paper) No. 803, Available at SSRN: https://ssrn.com/abstract=1840586 or http://dx.doi.org/10.2139/ssrn.1840586

Amanda Carmignani (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Alessio D'Ignazio

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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