Wealth, Enterprise And Credit Policy  

Oleh:

Meza, David de ; Webb, David

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Economic Journal (EBSCO) vol. 109 no. 455 (Apr. 1999), page 153-163.
Topik: Wealth; enterprise; credit policy
Fulltext: 153.pdf (171.82KB)

Isi artikel

Empirical evidence suggests that capital-market constraints prevent low-wealth individuals from setting up in business. This paper shows this ®nding to be consistent with socially excessive lending and an interest-rate tax being welfare-improving. One feature of the model, banks' inability to identify entrepreneurial quality, leads to excessive bank lending and investment in low-return projects. The reduction in the probability of bankruptcy lowers the cost of borrowing and eliminates deadweight costs and hence promotes entry. If the incentive effects are suf®ciently large, wealth and the volume of entrepreneurial activity move together. A key result of the paper is to show that a market equilibrium in which there is a positive relationship between entry and the level of wealth is consistent with either subsidies to inactivity or taxes on interest raising welfare.

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