Public Policy in Support of Small Business: The American Experience

13 Pages Posted: 2 Aug 2011

See all articles by Ben R. Craig

Ben R. Craig

Federal Reserve Bank of Cleveland; Deutsche Bundesbank

William E. Jackson

Culverhouse College of Business, University of Alabama

James B. Thomson

University of Akron

Date Written: August 2, 2011

Abstract

Information problems in small enterprise credit markets can result in a market equilibrium characterized by credit rationing. These information problems are potentially more severe during sharp economic downturns such as the recent Great Recession. Government interventions to alleviate credit constraints on small firms need to be designed to correct the specific market failure resulting in socially suboptimal credit flows. We argue that Small Business Administration loan guarantees are a potentially appropriate intervention and provide a review of empirical research that supports our contention.

Keywords: small business, economic growth, loan guarantees, credit rationing, relationship lending

JEL Classification: G38, H81, O16

Suggested Citation

Craig, Ben R. and Jackson, William E. and Thomson, James B., Public Policy in Support of Small Business: The American Experience (August 2, 2011). FRB of Cleveland Working Paper No. 11-16. Available at SSRN: https://ssrn.com/abstract=1903869 or http://dx.doi.org/10.2139/ssrn.1903869

Ben R. Craig

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States
216-579-2061 (Phone)
216-579-3050 (Fax)

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

William E. Jackson

Culverhouse College of Business, University of Alabama ( email )

Tuscaloosa, AL 35487-0225
United States
205.348.6217 (Phone)
205.348.6695 (Fax)

James B. Thomson (Contact Author)

University of Akron ( email )

Akron, OH 44325-4803
United States

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