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Economic Effects of Federal Credit Programs

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  • Gale, William G

Abstract

Since 1980, the federal government has directly subsidized one-third of all nonfederal borrowing. This paper presents numerical estimates of the effects of federal lending. Existing credit subsidies appear to have important effects on the allocation of credit, but little effect on aggregate investment. Efficiency costs are shown to be large (approximately 1/3 percent of GNP). Government costs exceed fifty cents per dollar of incremental targeted lending. Interactions among programs can eliminate much or all of the original gain provided by a subsidy, especially if borrowers are rationed. The paper also examines the effects of several policy reforms. Copyright 1991 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 81 (1991)
Issue (Month): 1 (March)
Pages: 133-52

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Handle: RePEc:aea:aecrev:v:81:y:1991:i:1:p:133-52

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Cited by:
  1. Grazia Rapisarda & Eleonora Patacchini, 2003. "A Study of the Effectiveness of Credit Subsidies: Evidence from a Panel of Italian Firms," Economics Series Working Papers 153, University of Oxford, Department of Economics.
  2. Iichiro Uesugi & Koji Sakai & Guy M. Yamashiro, 2006. "Effectiveness of Credit Guarantees in the Japanese Loan Market," Discussion papers 06004, Research Institute of Economy, Trade and Industry (RIETI).
  3. Eren Inci, 2007. "Occupational Choice and the Quality of Entrepreneurs," Boston College Working Papers in Economics 666, Boston College Department of Economics.
  4. Ono, Arito & Uesugi, Iichiro & Yasuda, Yukihiro, 2013. "Are lending relationships beneficial or harmful for public credit guarantees? Evidence from Japan's Emergency Credit Guarantee Program," Journal of Financial Stability, Elsevier, vol. 9(2), pages 151-167.
  5. Dailami, Mansoor & Kim, E. Han, 1991. "The effects of debt subsidies on corporate investment behavior," Policy Research Working Paper Series 727, The World Bank.
  6. Kartik B. Athreya & Xuan S. Tam & Eric R. Young, 2011. "Loan guarantees for consumer credit markets," Working Paper 11-06, Federal Reserve Bank of Richmond.
  7. Jeffrey M. Lacker, 1994. "Does adverse selection justify government intervention in loan markets?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 61-95.
  8. Patrick Honohan, 2008. "Partial Credit Guarantees: Principles and Practice," The Institute for International Integration Studies Discussion Paper Series iiisdp244, IIIS.
  9. Li, Wenli, 2002. "Entrepreneurship and government subsidies: A general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 26(11), pages 1815-1844, September.
  10. Uesugi, Iichiro & Sakai, Koji & Yamashiro, Guy M., 2008. "The Effectiveness of Public Credit Guarantees in the Japanese Loan Market," PIE/CIS Discussion Paper 400, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  11. Douhan, Robin & Henrekson, Magnus, 2007. "The Political Economy of Entrepreneurship: An Introduction," Working Paper Series 688, Research Institute of Industrial Economics.
  12. Deborah Lucas & Damien Moore, 2007. "The Student Loan Consolidation Option: An Analysis of an Exotic Financial Derivative: Working Paper 2007-05," Working Papers 18540, Congressional Budget Office.
  13. Lensink, Robert & Sterken, Elmer, 2001. "Asymmetric information, option to wait to invest and the optimal level of investment," Journal of Public Economics, Elsevier, vol. 79(2), pages 365-374, February.
  14. Karel Janda, 2005. "The Quantitative and Qualitative Analysis of the Budget Cost of the Czech Supporting and Guarantee Agricultural and Forestry Fund," Working Papers IES 86, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised 2005.
  15. Deborah Lucas & Marvin Phaup, 1975. "The Cost of Risk to the Government and Its Implications for Federal Budgeting," NBER Chapters, in: Measuring and Managing Federal Financial Risk, pages 29-54 National Bureau of Economic Research, Inc.
  16. Schreiner, Mark, 1997. "Ways Donors Can Help The Evolution Of Sustainable Microfinance Organizations," Economics and Sociology Occasional Papers 28327, Ohio State University, Department of Agricultural, Environmental and Development Economics.
  17. Salvatore Zecchini & Marco Ventura, 2009. "The impact of public guarantees on credit to SMEs," Small Business Economics, Springer, vol. 32(2), pages 191-206, February.
  18. Schwarz, Anita M., 1992. "How effective are directed credit policies in the United States? A literature survey," Policy Research Working Paper Series 1019, The World Bank.
  19. Wenli Li, 1998. "Government loan, guarantee, and grant programs: an evaluation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 25-52.
  20. Ma, Chien-Hui & Smith, Bruce D., 1996. "Credit market imperfections and economic development: Theory and evidence," Journal of Development Economics, Elsevier, vol. 48(2), pages 351-387, March.

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