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

Author

Listed:
  • Amanda Carmignani

    () (Bank of Italy)

  • Alessio D'Ignazio

    () (Bank of Italy)

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.

Suggested Citation

  • Amanda Carmignani & Alessio D'Ignazio, 2011. "Financial subsidies and bank lending: substitutes or complements? Micro level evidence from Italy," Temi di discussione (Economic working papers) 803, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_803_11
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    financial subsidies; credit constraints; banking;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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