DP19601 Public Policies for Private Finance
We review the literature on the effectiveness of public policies to facilitate firms’ access to finance. The rationale for such policies is to address market failures that cause financial constraints. Using a simple taxonomy, we discuss the current evidence base on common interventions to tackle these constraints: public lending through state and development banks; public lending through private banks; subsidized credit; credit guarantee schemes; export credit agencies; publicly backed venture capital; and tax incentives for equity investors. Based on the quantity and quality of the available evidence, we summarize the policies that have proven most effective in helping firms access external financing. Additionally, we highlight areas where future research is needed to address current knowledge gaps and to provide more definitive policy guidance.
