Government Support of Investment Projects in the Private Sector: A Microeconomic Approach

18 Pages Posted: 10 Jan 2005

See all articles by Dan Galai

Dan Galai

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Zvi Wiener

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Abstract

We examine government decisions on subsidizing investments in the private sector and discriminating among firms in its support programs. By taxing corporate profits, the government may affect corporate investment decisions, causing firms to invest less than what would be socially optimal. Investments that are desirable from the standpoint of social welfare may be rejected by shareholders, which may ultimately lead to the collection of fewer taxes. We analyze the conditions for optimal subsidies for investments carried out by the private sector. We find that high-risk ventures that generate substantial spillover activity are prime candidates for government incentive schemes.

Suggested Citation

Galai, Dan and Wiener, Zvi, Government Support of Investment Projects in the Private Sector: A Microeconomic Approach. Financial Management, Vol. 32, No. 3, 2003. Available at SSRN: https://ssrn.com/abstract=453283

Dan Galai (Contact Author)

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 5883235 (Phone)
972 2 5881341 (Fax)

Zvi Wiener

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel
(972)-2-588-3049 (Phone)
(972)-2-588-3105 (Fax)

HOME PAGE: http://pluto.mscc.huji.ac.il/~mswiener/zvi.html

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