Government Support of Investment Projects in the Private Sector: A Microeconomic Approach

Dan Galai*, Zvi Wiener

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

9 Scopus citations

Abstract

We examine government decisions on subsidizing investments in the private sector and discriminating among firms in its support programs. By taxing corporate profits, the government may affect corporate investment decisions, causing firms to invest less than what would be socially optimal. Investments that are desirable from the standpoint of social welfare may be rejected by shareholders, which may ultimately lead to the collection of fewer taxes. We analyze the conditions for optimal subsidies for investments carried out by the private sector. We find that high-risk ventures that generate substantial spillover activity are prime candidates for government incentive schemes.

Original languageEnglish
Pages (from-to)33-50
Number of pages18
JournalFinancial Management
Volume32
Issue number3
DOIs
StatePublished - 2003

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