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Keynes Fund


Research Output

Dr Tiago Cavalcanti - Credit Policies, Entrepreneurship and Development: Theory and Empirical Evidence on Brazil (JHLA).

The Effects of Credit Subsidies on Development, António Antunes, Tiago Cavalcanti and Anne Villamil, Economic Theory, (2015) Vol 58(1), pp 1-30. (Lead article)

Abstract: Under credit market imperfections, the marginal product of capital may not be equalized, resulting in misallocation and lower output. Preferential interest rate policies are often used to remedy the problem. This paper constructs a general equilibrium model with heterogeneous agents, imperfect enforcement and costly intermediation. Occupational choice and firm size are determined endogenously by an agent’s type (ability and net wealth) and credit market frictions. The credit program subsidizes the interest rate on loans and requires a fixed application cost, which might be null. We find that the credit subsidy policy has no significant effect on output, but it may have negative effects on wages. The program is largely a transfer from households to a small group of entrepreneurs with minor aggregate effects. We also provide estimates of the effects of reducing the frictions directly. When comparing differences in US output per capita in a baseline case to simulations with counterfactually high frictions, intermediation costs and enforcement explain about 20–25 % of the output gap. We include a transition analysis. Copyright Springer-Verlag Berlin Heidelberg 2015.

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Access to long-term credit and productivity of small and medium firms: A causal evidence, Tiago Cavalcanti and Paulo Vaz, Economics Letters, (2017) Vol 150, pp  21-25.

Abstract: This letter assesses the impact of a variation in access to a targeted loan program from Brazil’s development bank on investment and productivity. Results suggest that eligible firms increased their relative investment rate and productivity, but results are robust only for permanent rather than temporary improvements in access to credit.

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