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Fund substitution and the incentive effect of public investment subsidies

Lookup NU author(s): Professor Colin Wren


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This paper analyses the observed phenomenon of public for private fund substitution in industrial assistance, by examining the public and private sector funding of investment under different assumptions about the nature of the private capital marker. This bears an the effectiveness of industrial subsidies, and has implications for welfare and the design of optimal assistance contracts. It is shown that fund substitution depends crucially on the elasticity of investment with respect to the user cost of capital in the without-subsidy position, and on the nature of any amount and rate constraints on the assistance contract.

Publication metadata

Author(s): Wren C

Publication type: Article

Publication status: Published

Journal: Scottish Journal of Political Economy

Year: 1996

Volume: 43

Issue: 5

Pages: 534-548

Print publication date: 01/11/1996

ISSN (print): 0036-9292

ISSN (electronic): 1467-9485

Publisher: Wiley


DOI: 10.1111/j.1467-9485.1996.tb00949.x


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