Government Loan, Guarantee, and Grant Programs: An Evaluation

27 Pages Posted: 21 Nov 2012

See all articles by Wenli Li

Wenli Li

Federal Reserve Bank of Philadelphia

Date Written: 1998

Abstract

The growth in government loan guarantee programs relative to other forms of intervention in credit markets prompts the question: Are loan guarantees necessarily better than other subsidies, particularly direct loans and grants, in providing benefits to targeted groups? The answer is: not in all cases. An analysis of the three loan programs in a credit economy model shows that direct loans perform best at targeting cash-poor entrepreneurs with good business prospects; loan guarantees attract relatively riskier businesses with few assets; and grants are least distortionary but are not targeted to any specific set of recipients.

Suggested Citation

Li, Wenli, Government Loan, Guarantee, and Grant Programs: An Evaluation (1998). FRB Richmond Economic Quarterly, vol. 84, no. 4, Fall 1998, pp. 25-51, Available at SSRN: https://ssrn.com/abstract=2126288

Wenli Li (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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