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Grants Vs . Investment Subsidies

Author

Listed:
  • Ashok S. Rai
  • Tomas Sjostrom

Abstract

How should a government intervene to help the credit constrained poor? We study an economy where productivity and wealth are unobserved, and loans must be collateralized. We show that the e¢cient policy typically consists of o¤ering both a grant and an investment subsidy. Everybody will take the grant and only the relatively productive will take the subsidy. This policy reduces but does not eliminate investment distortions.

Suggested Citation

  • Ashok S. Rai & Tomas Sjostrom, 2001. "Grants Vs . Investment Subsidies," CID Working Papers 84, Center for International Development at Harvard University.
    • Handle: RePEc:cid:wpfacu:84
    as

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    References listed on IDEAS

    as
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    2. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    3. de Meza, David & Webb, David, 2000. "Does credit rationing imply insufficient lending?," Journal of Public Economics, Elsevier, vol. 78(3), pages 215-234, November.
    4. Besley, Timothy & Coate, Stephen, 1992. "Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs," American Economic Review, American Economic Association, vol. 82(1), pages 249-261, March.
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    More about this item

    Keywords

    credit constraints; collateral; intervention; loan subsidy; grant;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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