The Impact of Public Subsidies on Investment and Growth

Kállay, László and Takács, Tibor (2023) The Impact of Public Subsidies on Investment and Growth. Journal of Policy Modeling, 45 (5). pp. 895-909. DOI

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Public subsidy, a frequently applied tool of economic development is often provided to the business sector assuming that it promotes investments, employment, and income generation. In this paper a micro economic model based empirical analysis is presented that shows the possible impact of public subsidy on economic growth. The outcomes are derived by investigating the investment decision of the enterprise with and without public subsidy. It is demonstrated that public subsidy may increase social welfare, but under certain circumstances it also may decrease it, partly because authorities deciding about them fail to consider the information on the investment projects that determines the outcome. The empirical analysis of corporate subsidies proves that both cases occur. The number of firms that performed well and presumably had not enough own resources to fund the investment was less than 10% of all subsidized firms. The programs had an overall negative impact on economic growth. We provide recommendations on how methods of evaluations, project selection and monitoring should be modified to achieve better results of subsidy programs.

Item Type:Article
Uncontrolled Keywords:public subsidy, investment decision, economic growth, social welfare
Divisions:Institute of Data Analytics and Information Systems
Institute of Entrepreneurship and Innovation
Subjects:Economic development
ID Code:9291
Deposited By: MTMT SWORD
Deposited On:11 Oct 2023 07:46
Last Modified:11 Oct 2023 07:46

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