Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation
In Hwan Jo and
Tatsuro Senga
Additional contact information
In Hwan Jo: National University of Singapore
Review of Economic Dynamics, 2019, vol. 32, 68-93
Abstract:
Government policies that attempt to alleviate credit constraints faced by small and young firms are widely adopted across countries. We study the aggregate impact of such targeted credit subsidies in a heterogeneous firm model with collateral constraints and endogenous entry and exit. A defining feature of our model is a non-Gaussian process of firm-level productivity, which allows us to capture the skewed firm size distribution seen in the Business Dynamics Statistics (BDS). We compare the welfare and aggregate productivity implications of our non-Gaussian process to those of a standard AR(1) process. While credit subsidies resolve misallocation of resources and enhance aggregate productivity, increased factor prices, in equilibrium, reduce the number of firms in production, which in turn depresses aggregate productivity. We show that the latter indirect general equilibrium effects dominate the former direct productivity gains in a model with the standard AR(1) process, as compared to our non-Gaussian process, under which both welfare and aggregate productivity increase by subsidy policies. (Copyright: Elsevier)
Keywords: Misallocation; Collateral constraints; Firm dynamics; Firm size (search for similar items in EconPapers)
JEL-codes: E22 G32 O16 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)
Downloads: (external link)
https://dx.doi.org/10.1016/j.red.2019.01.002
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See https://www.sciencedirect.com/ for details.
Related works:
Software Item: Code and data files for "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation" (2019) 
Working Paper: Online Appendix to "Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation" (2019) 
Working Paper: Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation (2018) 
Working Paper: Aggregate Consequences of Credit Subsidy Policies: Firm Dynamics and Misallocation (2017) 
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:red:issued:17-402
Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/
DOI: 10.1016/j.red.2019.01.002
Access Statistics for this article
Review of Economic Dynamics is currently edited by Loukas Karabarbounis
More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().