Financial subsidies and bank lending: substitutes or complements? Micro level evidence from Italy

Amanda Carmignani () and Alessio D'Ignazio
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Amanda Carmignani: Bank of Italy

No 803, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

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 per cent to 84 per cent.

Keywords: financial subsidies; credit constraints; banking (search for similar items in EconPapers)
JEL-codes: G2 H2 O16 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-ban and nep-cfn
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_803_11

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