Optimization of Budget Subsidies on Credits for Investment Projects

Vadim Arkin and Alexander Slastnikov ()

Journal of the New Economic Association, 2016, vol. 29, issue 1, 12-26

Abstract: The paper studies the mechanism of budgetary subsidies on interest rates for credit granted for the financing and implementation of investment projects. To evaluate the potential of the mechanism of budgetary subsidies we consider an optimization approach in which the value of subsidized interest rate (not exceeding the given boundary) is chosen so that the budgetary effect from the implemented project was maximal. The formulas for the optimal value of the subsidized interest rate on loan are obtained. We explore how various parameters of the investment project and the tax burden influence the optimal value of subsidies and optimal investment level (which specifies the time for investment into the project under the optimum value of subsidies). We derive conditions under which for state it is not profitable (in terms of the budgetary effect) to provide subsidies on the loan. It is proved the possibility of reconciling the interests of the investors and the state in which the increase of subsidized interest rate (within certain limits) becomes profitable not only for investors, but also for the state.

Keywords: investment project; credit; subsidies on interest rate; budgetary effect (search for similar items in EconPapers)
JEL-codes: C61 D81 G38 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.econorus.org/repec/journl/2016-29-12-26r.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nea:journl:y:2016:i:29:p:12-26

Access Statistics for this article

Journal of the New Economic Association is currently edited by Victor Polterovich and Aleksandr Rubinshtein

More articles in Journal of the New Economic Association from New Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Alexey Tcharykov ().