The Politician and his Banker:– How to Efficiently Grant State Aid

Arbeitspapier

In the current recession, politicians grant state aid of yet unknown dimensions. But whatis the most efficient measure for granting such aid? We use a theoretical model withfirms that differ in their creditworthiness and compare different types of direct subsidieswith indirectly subsidized loans. We find that, in a large parameter range, politiciansprefer subsidized loans to direct subsidies, because these avoid windfall gains to entrepreneurs,and they economize on screening costs. For similar reasons, subsidized loansmay increase social welfare relative to subsidies. From a welfare perspective, politiciansuse subsidized loans inefficiently often.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ifo Working Paper ; No. 71

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Corporate Finance and Governance: Government Policy and Regulation ; Business Taxes and Subsidies including sales and value-added (VAT)
• Subject: State aid ; subsidized loans ; public bank ; governance

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hainz, Christa ; Hakenes, Hendrik
• Event: Veröffentlichung
• (who): ifo Institute - Leibniz Institute for Economic Research at the University of Munich
• (where): Munich
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/73787
• Last update: 10.03.2025, 11:43 AM CET