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

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  • Amanda Carmignani

    () (Bank of Italy)

  • Alessio D'Ignazio

    () (Bank of Italy)

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    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.

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    File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td11/td803_11/en_td_803_11/en_tema_803.pdf
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    Bibliographic Info

    Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 803.

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    Date of creation: Apr 2011
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    Handle: RePEc:bdi:wptemi:td_803_11

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    Web page: http://www.bancaditalia.it
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    Keywords: financial subsidies; credit constraints; banking;

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