IDEAS home Printed from https://ideas.repec.org/a/nea/journl/y2016i29p12-26.html
   My bibliography  Save this article

Optimization of Budget Subsidies on Credits for Investment Projects

Author

Listed:
  • Arkin, V.

    (Central Economics and Mathematics Institute, Moscow, Russia)

  • Slastnikov, A.

    (Central Economics and Mathematics Institute, Moscow, Russia)

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.

Suggested Citation

  • Arkin, V. & Slastnikov, A., 2016. "Optimization of Budget Subsidies on Credits for Investment Projects," Journal of the New Economic Association, New Economic Association, vol. 29(1), pages 12-26.
    • Handle: RePEc:nea:journl:y:2016:i:29:p:12-26
    as

    Download full text from publisher

    File URL: http://www.econorus.org/repec/journl/2016-29-12-26r.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. António Antunes & Tiago Cavalcanti & Anne Villamil, 2015. "The effects of credit subsidies on development," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(1), pages 1-30, January.
    3. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 707-727.
    4. Gale, William G, 1991. "Economic Effects of Federal Credit Programs," American Economic Review, American Economic Association, vol. 81(1), pages 133-152, March.
    5. Vadim Arkin & Alexander Slastnikov, 2007. "The effect of depreciation allowances on the timing of investment and government tax revenue," Annals of Operations Research, Springer, vol. 151(1), pages 307-323, April.
    6. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arkin,V. & Slastnikov, A., 2017. "Optimization of Concession Payments in Stochastic Model of Public-Private Partnership," Journal of the New Economic Association, New Economic Association, vol. 36(4), pages 31-47.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Huberts, Nick F.D. & Rossi Silveira, Rafael, 2023. "How economic depreciation shapes the relationship of uncertainty with investments’ size & timing," International Journal of Production Economics, Elsevier, vol. 260(C).
    2. Zambujal-Oliveira, João & Duque, João, 2011. "Operational asset replacement strategy: A real options approach," European Journal of Operational Research, Elsevier, vol. 210(2), pages 318-325, April.
    3. Arkin,V. & Slastnikov, A., 2017. "Optimization of Concession Payments in Stochastic Model of Public-Private Partnership," Journal of the New Economic Association, New Economic Association, vol. 36(4), pages 31-47.
    4. Hervé Roche, 2022. "The implications of tax loss carryforwards on investment policy," Mathematics and Financial Economics, Springer, volume 16, number 6, June.
    5. Oscar Gutiérrez & Francisco Ruiz-Aliseda, 2011. "Real options with unknown-date events," Annals of Finance, Springer, vol. 7(2), pages 171-198, May.
    6. Arve, Malin & Zwart, Gijsbert, 2023. "Optimal procurement and investment in new technologies under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).
    7. Wong, Kit Pong, 2011. "Progressive taxation and the intensity and timing of investment," Economic Modelling, Elsevier, vol. 28(1-2), pages 100-108, January.
    8. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2017. "Assessing the Energy-Efficiency Gap," Journal of Economic Literature, American Economic Association, vol. 55(4), pages 1486-1525, December.
    9. Estrada, Isabel & de la Fuente, Gabriel & Martín-Cruz, Natalia, 2010. "Technological joint venture formation under the real options approach," Research Policy, Elsevier, vol. 39(9), pages 1185-1197, November.
    10. LOFGREN Asa & MILLOCK Katrin & NAUGES Céline, 2007. "Using Ex Post Data to Estimate the Hurdle Rate of Abatement Investments - An application to the Swedish Pulp and Paper Industry and Energy Sector," LERNA Working Papers 07.06.227, LERNA, University of Toulouse.
    11. Song, Dandan & Wang, Huamao & Yang, Zhaojun, 2014. "Learning, pricing, timing and hedging of the option to invest for perpetual cash flows with idiosyncratic risk," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 1-11.
    12. Wong, Kit Pong, 2008. "Does market demand volatility facilitate collusion?," Economic Modelling, Elsevier, vol. 25(4), pages 696-703, July.
    13. John P. Small & Henry Ergas, 1999. "The Rental Cost of Sunk and Regulated Capital," Econometrics Working Papers 9908, Department of Economics, University of Victoria.
    14. Laetitia Lepetit & Clovis Rugemintwari & Frank Strobel, 2015. "Monetary, Financial and Fiscal Stability in the East African Community: Ready for a Monetary Union?," The World Economy, Wiley Blackwell, vol. 38(8), pages 1179-1204, August.
    15. N. Bloom, 2016. "Fluctuations in uncertainty," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 4.
    16. Miao, Jianjun & Wang, Neng, 2007. "Investment, consumption, and hedging under incomplete markets," Journal of Financial Economics, Elsevier, vol. 86(3), pages 608-642, December.
    17. Gürtler, Marc & Sieg, Gernot, 2006. "Crunch time: The optimal policy to avoid the "Announcement Effect" when terminating a subsidy," Working Papers FW24V2, Technische Universität Braunschweig, Institute of Finance.
    18. Bar-Ilan, Avner & Strange, William C., 1998. "A model of sequential investment," Journal of Economic Dynamics and Control, Elsevier, vol. 22(3), pages 437-463, March.
    19. Feil, Jan-Henning & Musshoff, Oliver, 2013. "Investment, disinvestment and policy impact analysis in the dairy sector: a real options approach," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 159229, Humboldt University Berlin, Department of Agricultural Economics.
    20. Ferguson, Andrew & Hu, Wei & Lam, Peter, 2022. "Political uncertainty and deal structure: Evidence from Australian mining project acquisitions," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).

    More about this item

    Keywords

    investment project; credit; subsidies on interest rate; budgetary effect;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nea:journl:y:2016:i:29:p:12-26. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alexey Tcharykov (email available below). General contact details of provider: https://edirc.repec.org/data/nearuea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.