This paper quantitatively studies the effects of government credit subsidies. We find that
current credit assistance programs in the form of interest subsidies exert strong effects on the
allocation of credit to targeted entrepreneurs, but at the cost of non-targeted entrepreneurs.
Total entrepreneurial activities are reduced and large output loss is incurred. The paper also
examines several alternative credit programs. Our analysis suggests that income subsidy
programs and programs that specifically target poor and capable entrepreneurs are more …