User cost of capital with delayed investment grants

Jorge Navas Rodenes and Jesus Marin-Solano

No 161, Working Papers in Economics from Universitat de Barcelona. Espai de Recerca en Economia

Abstract: The usual assumption when considering investment grants is that grant payments are automatic when investments are undertaken. However, evidence from case studies shows that there can exist some time lag until funds are received by granted firms. In this paper the effects of delays in grant payments on the optimal investment policy of the firm are analyzed. It is shown how these delays lead not only to a higher financing cost but to an effective reduction in the investment grant rate, and in some cases, how benefits from investment grants could be canceled due to interactions with tax effects.

JEL-codes: C61 D92 H32 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2006
New Economics Papers: this item is included in nep-acc and nep-pbe
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